Top 10 Casualty Trends for 2015
December 29, 2014 11:30 AM
Image: iStock
Casualty Market Softens
"Overall, casualty insurance rates remain stable as we head into 2015, with the market poised to soften. Average rates had been rising; however, the magnitude of those increases has slowed of late. We expect this trend to pick up in 2015, which would turn average rate changes negative. As insurers battle for favorable classes of business, those that rely on reinsurance may no longer be able to hold on to the price arbitrage they have enjoyed and may have to pass some savings on to their clients to maintain a competitive advantage. " -- MarshImage: iStock
New Capacity: Where It Will Come From
"New capacity continues to enter the US casualty marketplace, particularly as the workers compensation line returns to profitability. Thanks to record policyholder surplus, some of the new capacity comes from expanded appetite of current players looking for premium growth. Asian markets also continue to expand their footprints; one insurer recently gained approval for a full Lloyds syndicate, and others are making acquisitions in the US and elsewhere. As the sector continues to do well, additional capacity is likely to continue to enter and improve the competitive landscape for casualty insurance buyers." -- MarshImage: iStock
New Capacity: Where It Wont Come From
"New alternative capital capacity that has entered the market has indirectly influenced the casualty market by encouraging traditional property reinsurers to shift their appetites to casualty. A few reinsurers have established specialty and casualty reinsurance platforms in the US. But from an alternative capital perspective, the casualty space continues to be untapped on a direct basis. The long tail nature of the risk, contract ambiguities, and the lack of any reliable third-party industry loss index make for a challenging proposition for shorter duration appetites. We expect to see some attempts at bifurcating the casualty risk to isolate and quantify the short tail liability portion of the risk (for example, claims made policies with defined payout triggers and vertical loss events as opposed to horizontal exposures). Even if successful, these attempts are unlikely to result in alternative capital directly altering the casualty reinsurance landscape or influencing casualty insurer buying strategies." -- MarshImage: iStock
The Haves and Have Nots
"Although the overall casualty insurance market is relatively calm, certain classes of business continue to be favored while others continue to be more difficult to place. Underwriters are flocking to the favored classes with good loss experience, leaving less competition for the harder-to-place risks such as California workers compensation, workers compensation for employers with large concentrations, excess workers compensation, trucking fleets, and New York labor law-exposed risks. This will result in more alternative programs being developed and upward pressure on rates and retentions on loss sensitive programs for these harder-to-place risks in 2015." -- MarshImage: iStock
Data is Power
"Insurers continue to focus on underwriting profitability and are using analytics to find it in a very competitive marketplace. Carriers are getting more and more granular in their underwriting in order to differentiate between risks and to be able to feed their models: A go or no-go decision for carriers now often comes down to a ZIP code or a street address. Trading ranges are narrowing across the book, which could indicate that the low-hanging fruit of price differentiation has been picked. In excess casualty, for example, the spread between the first and fourth quartiles of rate changes was 9.2% in the fourth quarter of 2013; it is now 5.5%. Insurance buyers are also using data more aggressively to help them negotiate the most favorable programs and make buying decisions." -- MarshImage: iStock
Insurer Differentiation
"Insurers in 2015 will likely look to differentiate themselves on flexibility and relationship. For example, clients will enjoy an increased acceptance of alternative collateral forms to the always popular letter of credit. This phenomenon has been moving in a positive direction for the last 18 months and is starting to gain momentum going into 2015 as more carriers accept surety for a portion of total collateral, are willing to sell credit, and offer larger credit deviations. At the same time, carriers are offering multi-line discounts as they seek to round out their books. On the negative side, insurers will likely become more insistent when it comes to increasing their product penetration with clients."-- MarshImage: iStock
The Dog Starts to Wag the Tail
"While brokers and insureds have historically benchmarked premium rate and limits purchased, the ever-increasing volume of data and enhanced analytics will provide more insight into loss costs; often the most significant component of total cost of risk. For example, new analytical tools remove subjectivity when it comes to claims-handling success and allow clients to quantify how well their TPAs manage medical costs when handling workers compensation claims. Refocusing cost-reduction efforts to what is really driving the workers compensation spend not simply premium will empower buyers in an increasingly competitive and consolidating TPA environment. However, organizations that may want to engage a new TPA for claim services need to be aware of the potential impact on insurance program costs quoted by insurers that lose the claim management piece." -- MarshImage: iStock
Unintended Consequences
"The increasing severity of individual, multi-district, and class-action settlements and judgments is likely to result in more difficult coverage and claim negotiations related to excess liability. Carriers continue to scrutinize language before binding and after losses. Program structures will likely be reevaluated and changed at renewal with a post-claim mindset." -- MarshImage: iStock
Innovation Continues
"Carriers will likely be pushed to focus on reducing complexity and ambiguity in policy wordings and on innovating products to cover never-before-seen exposures. ISOs recent cyber endorsements do not provide the required clarity when it comes to bodily injury and property damage, and will continue to evolve. Other general liability components that will continue to evolve include professional liability exclusions and pollution wording in the context of communicable disease. On the excess liability front, clients are likely to demand consistency in the tower, which will push insurers to adopt new endorsements or policy forms. The rapid pace of change in the way society consumes goods and information will require the US casualty market to be more proactive and innovative. The socioeconomic shifts we are experiencing, from crowdsourcing and farm-to-table initiatives to the impact of the Affordable Care Act on workers compensation costs, are likely to have implications for the liability landscape, thereby forcing an increased level of innovation by insurers in 2015." -- MarshImage: iStock
The World Gets Smaller
"More primary insurers have restructured to better align their domestic underwriting teams with their international casualty offerings. This trend will likely accelerate as insureds continue expanding internationally and insurers and brokers attempt to better leverage their position across their domestic and international books of business. Global primary product offerings will likely become more common. In addition, insureds will become more attentive to compliance pressures, and carriers are in turn likely to offer more choice with regard to locally compliant excess liability." -- MarshImage: iStock