November 25, 2015 by Canadian Underwriter
Commercial insurance rates decreased globally during 2015 Q3 – posting a global composite decline of 4.8% – marking the tenth consecutive quarterly decline, notes the November 2015 edition of Marsh’s Global Insurance Market Quarterly Briefing.
Released Tuesday, the briefing shows renewal rates fell in all regions and in most lines of business during the third quarter of 2015. By region, the United Kingdom and Asia-Pacific posted the largest composite rate decreases, followed by Continental Europe, Latin America and the United States.
Among the major coverage lines, Marsh reports that property insurance showed the largest rate declines in 2015 Q3, with decreases averaging more than 5%. In order, the highest decreases were in Asia-Pacific, Continental Europe and the U.S., with Latin America and the U.K. showing the smallest decreases regionally.
For casualty insurance rates in 2015 Q3, declines were, on average, less than for property rates. Nonetheless, average declines were consistently from 2% to 4% across all major regions, led by Asia-Pacific and the U.K. [Click on image below to enlarge]
“The global composite index for financial products decreased 5%; however, the U.S. and Latin America both posted small increases,” states the briefing. “This was largely a consequence of cyber insurance, which in the U.S. experienced average rate increases of more than 15%,” Marsh notes, adding that cyber insurance stood out as the only line with consistent, large rate increases.
Data gathered by Marsh indicates the average cyber insurance limit purchased grew in the third quarter of 2015, piercing the US$20-million level for the first time. “Limits purchased were up more than 10%, on average, in the third quarter compared to the same period last year,” notes the briefing.
Concerns around the possibility of harmful cyber attacks are growing for most companies, what with the nature of potential threats evolving and the frequency and severity of meaningful attacks increasing. That being the case, stakeholders such as insurers, exposed organizations, regulators and customers “are working to better understand the exposure to cyber-related losses,” the briefing notes.
Potential cyber threats can come from both external and internal sources. While traditionally, cyber threats have been “viewed as those emanating from an outside attack against a company to steal personally identifiable information,” companies are now also concerned with internal threats, including those seeking to extort money, steal intellectual property or cause embarrassment.
“Understanding the motivation of attackers and the nature of access to systems and data is critical as companies pursue better defences against possible threats emanating from inside,” Marsh emphasizes.
“Organizations that understand the nature of potential threats and their exposure to cyber attacks will be best suited to develop a comprehensive risk management strategy to counter them,” Paul Denny, Marsh’s Northeast U.S. FINPRO leader and U.S. E&O leader, notes in the briefing.
Marsh reports that insurance rate changes are reflecting a certain level of segmentation today. “It will be interesting to see to what extent increasing segmentation is possible with the benefit of more robust data sources, which can include company-specific information concerning both the motivation of potential attackers as well as a company’s ability to defend itself against attack.”
Overall, “ample capacity and a low level of catastrophic loss activity accounted for healthy underwriting results and satisfactory combined ratios for insurers,” the briefing states. “Without the near-term catalyst that larger wind or earthquake events have historically provided, the property rate environment continues to be competitive with most accounts typically seeing rate decreases at renewal,” Nick Holmes, Marsh’s head of placement for Continental Europe, adds in the briefing.
Marsh points out that additional sources of data, predictive modelling and better ways to operationalize new pricing approaches “are contributing to carriers’ ability to more accurately price risks. This helps explain the market’s strong capital position in light of the continued decreases in rate levels.”