The P&C market will be stable and competitive in 2014, according to the “Insurance 2014 Insurance Market Outlook,” from Wells Fargo Insurance. The company said it anticipates significant marketplace capacity, excellent coverage quality in many areas, does not expect a lot of pricing volatility.
“We expect 2014 to be a good year for the majority of our commercial property and casualty insurance customers,” said Simon Hodge, head of the Professional Risk Group at Wells Fargo Insurance. “We anticipate significant marketplace capacity, excellent coverage quality in many areas, and do not expect a lot of pricing volatility.”
Projected 2014 rate changes
Insureds with guaranteed cost program structures, poor loss experience or large heavy fleet counts: 5- to 20-percent increase.
Insureds with low deductibles: 5- to 10-percent increase
Insureds with high deductibles: 0- to 5-percent increase
Lead umbrella: 3- to 10-percent increase
Excess liability: 0- to 5-percent increase
Last year was a profitable one for the insurance industry, Wells Fargo said, and the combined ratio through the first nine months declined to 95.8 from 100.7 compared to the same period in the prior year. The industry-wide return on average surplus rose to 9.5 percent from 6.5 percent through the first nine months, compared to the same period in 2012; Net written premiums grew modestly, as did investment returns.
Wells Fargo’s P&C recommended placement considerations:
- Submission quality
- The significance of catastrophe models in the renewal process (RMS & AIR)
- Use of an interactive marketing process
- Alternative program structures
- Use of multiple carriers (especially for catastrophe-driven accounts)
- Lead-time — start the renewal process early
“2014 is a buyer’s market for P&C insurance,” Wells Fargo said. “2013’s combined rate and pricing ratio fell to 95.8 from 100.7 between January to September, with very low- to- flat rate reductions or increases expected in 2014.”
Larger companies generally are prepared to resist upward rate pressure, Wells Fargo said, as many have cut operating costs and increased productivity and accumulated significant amounts of cash, which enables them to assume increased retentions to offset rising rates.
Top concerns, according to the report, include regulatory changes, increased scrutiny and political uncertainty. Other risk concerns include cyber security and privacy risks, volatility of global financial markets, slow recovery/double-dip recession, reputational damage, attracting and retaining top talent, emerging technologies and terrorism.
Market capacity and market surplus are at record levels, Wells Fargo said, and the insurance-linked securities market for CAT perils, such as wind and earthquake, grew by 16 percent annually over the past three years. “Alternative capacity could reach a global market share of approximately 25 percent by 2020 if this growth rate continues,” Wells Fargo said.
For liability insurance, the outlook is mixed, Wells Fargo said. The persistently low interest rate environment continues to depress profitability; a majority of customers experienced rate increases last year and the ability for insurers to continue raising rates over the long term is uncertain, Wells Fargo said. And, barring major catastrophe events, rate should begin to flatten or decrease in the third or fourth quarters.
Quoting the Council of Insurance Agents & Brokers, the automobile liability and general/products liability markets experienced average rate increases of between 3- and 7-percent for the first nine months of 2013, Wells Fargo said. And, 65 percent of insureds experienced rate increases in 2013, 30 percent experienced a flat renewal and 5 percent experienced rate decreases.
Liability highlights from the report:
- Auto liability. There is plenty of capacity available, but it is being deployed more selectively.
- General/products liability. There is plenty of capacity available through numerous markets.
- Stand-alone products liability. A limited market remains, with few insurers willing to compete for clients with an inherently difficult product line.
- Lead umbrella. A more competitive landscape than last year, but lead capacity still being deployed selectively.
- Excess capacity. Many markets are willing to aggressively compete.
“To secure the lowest rate possible, it will be important to proactively negotiate with carriers, while demonstrating effective loss prevention and claims handling,” Wells Fargo said. “Insurance buyers who can demonstrate that they represent a better-than-average risk by presenting credible arguments are able to secure more competitive pricing as well as coverage.”
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