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Commercial lines that will see the greatest rate increases in 2020


November 16, 2019   by Jason Contant


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Commercial property, umbrella, and public company directors and officers (D&O) lines are expected to see the most widespread rate hikes of 20% and higher, in addition to capacity withdrawals, according to Willis Towers Watson’s Insurance Marketplace Realities 2020 report.

The report, released Wednesday, offers property and casualty industry analysis and rate forecasts for North American commercial insurance buyers as they prepare for upcoming renewals. About 20 lines of commercial business are expected to see rate increases – many of which will be sizeable, and for more lines than in recent years – reflecting current hard market conditions.

Six lines (fiduciary, environmental, political risk, kidnap and ransom, and terrorism) will have a mix of both increases and flat renewal rates, while two lines (international casualty and surety) expect price decreases.

“We’re seeing the biggest upward price shift in years,” Joe Peiser, global head of broking at Willis Towers Watson, commented in a release. “We expect rate hikes and capacity constrictions will continue throughout 2020 and likely into 2021, but a more orderly market to emerge by mid-2020,” especially for commercial property.

Capacity is available in all but the most challenged lines, but “underwriters are showing unprecedented discipline in its deployment, especially for risks they find perilous,” as Willis notes in its report.

Still, there are reasons for optimism, Peiser said. “The alternative capital market is showing renewed enthusiasm for reinsurance; the overall industry has more capital than ever; insolvencies are a rarity; insurtech is working with market participants to improve the client experience, and the laws of supply and demand still apply,” he said. “This challenging market won’t last forever.”

On the other hand, several factors account for the firming market. Persistently low interest rates have dampened insurer returns on their investment portfolios. Across commercial property, extreme catastrophic weather and wildfires over the past few years have had a direct impact on pricing, prompting conditions to harden with sustained escalation in rates.

According to the report, the commercial liability market is worsening, with deteriorating loss trends that continue to impact underwriting profitability negatively, except in workers compensation, which remains stable. In fact, general liability predictions moved from the mixed category (increases and decreases of between approximately –5% to +5%) into single-digit increases for virtually all buyers, Willis Towers Watson reported.

Auto liability continues to be unprofitable for personal and commercial insurers as losses continue to climb (due, in part, to economic growth), which has companies facing labour shortages relying on more inexperienced workers who have a higher rate of accidents, especially in trucking. A strong economy also means more vehicle traffic and accidents, particularly as distracted driving persists. As well, the umbrella/excess liability market is experiencing significant disruption, especially for large company buyers.

“Companies continue to be held accountable for social ills, whether they were actors or bystanders, and today’s juries seem numb to monetary values,” Willis Towers Watson added. “Fingers are also being pointed at D&O, underscored by a record number of shareholder class actions. Accordingly, D&O liability insurers have demonstrated discipline by raising rates and hedging bets by deploying much lower limits on any one risk.”