U.S. Commercial Insurance Market Expected to Firm in 2013

Despite the lack of traditional signs of a hard market, such as a lack of uniformity in price increases, plentiful capacity, and intense competition, U.S. commercial insurance rates are expected to continue firming, according to Marsh’s “US Insurance Market Report 2013,” as above-average losses, diminished investment returns and receding reserve releases in many lines of business and industry sectors affect insurers.

“Many of our clients will face challenging renewals across several lines and industries in 2013, as insurers continue to adjust their pricing and coverage offered to maintain profitability,” said David Bidmead, Marsh’s U.S. CEO. “Clients that effectively differentiate themselves from their peers by providing complete underwriting submissions with accurate and high-quality data will be best positioned to secure more favorable terms, conditions, and pricing where possible.”

Though the full extent of insured storm-related losses is still being determined, Superstorm Sandy will likely reverse declining rates for property insurance, Marsh said, and casualty insurance remains in a state of transition.

“Although Superstorm Sandy will rank as one of the costliest storms in U.S. history, it is not forcing a rapid hardening of the overall market as insurers’ capital positions were strong enough to weather the storm,” Bidmead said. “But the storm has prompted underwriters to seek clarification of certain definitions and other language in property policies. In the Northeast and other regions that they did not previously perceive to be catastrophe-exposed, property insurers are also reconsidering their underwriting approach and seeking higher rates and tighter terms and conditions.

Other highlights from the report:

• Insureds with significant catastrophe exposures renewing programs in Q4 2012 typically saw property rate increases of 5 percent to 15 percent

• The general liability market was stable in 2012, with some moderate firming. Rates at renewal in Q4 ranged from 5 percent decreases to 5 percent increases

• Work comp rates renewed in the range of 5 percent decreases to 5 percent increases in Q4, with rates generally expected to increase

• After a decade of declining rates, the D&O market entered a state of transition in Q2 2012. Pricing at renewal in Q4 was flat-to-up 10 percent for publicly traded companies, and flat-to-up 15 percent for private companies, and many insurers likely will seek rate increases in 2013

• Commercial E&O and cyber insurance rates began trending upward in 2012 driven by an increase in the frequency and severity of claims. Rates were flat-to-up 5 percent for both lines in Q4 and are expected to continue climbing

• The political risk market was generally stable, though pricing increased for some countries in the Middle East and North Africa at the end of 2012, a trend likely to continue in 2013. Conditions in the U.S. trade credit insurance market are expected to continue favoring insureds, despite concern about the European sovereign debt crisis and other global events.

Across various lines of business and client demographics, pricing trends likely will be felt unevenly, and rates for financial and professional insurance, such as directors and officers liability (D&O), commercial errors and omissions (E&O) and cyber insurance also are expected to increase.