Casualty line to cause risk managers headaches in 2004: Willis

International broker Willis says Canadian organizations should expect no respite from directors’ and officers’ rate hikes, and a critical capacity shortage in professional liability heading into 2004.
“The intensity in rate increases has shifted from property to the casualty lines,” writes Mark McKay, executive vice president of Willis Canada in Willis’ annual “Marketplace Realities” report.
In 2004, property rates will flatten, and may even fall by up to 10%, but policy wordings remain an issue some insurers are insisting on their own wordings, while others are looking carefully at business interruption exposures, policy limits and deductibles. However, organizations with clean loss records and no cat exposures can expect better treatment, he says, in part due to a growth in property capacity. The Lloyd’s and Bermuda markets have stepped up, filling in the gap in domestic capacity.
The energy sector will also see a certain amount of stability after weathering a tough ride in the hard market.
On the downside, liability risks will see 10% increases in the primary market, and 20% on excess liability. There will be continued pressure on companies with U.S. exposures, where rates could jump 30-40%.
Publicly traded companies will feel the brunt on D&O exposures, where they could see increases of 30%, and further tightening of terms and conditions. “Contrary to a US marketplace that has seen new capacity in D&O and consequently a possible flattening of rates, Canada in 2004 will still see premium increases, particularly for the publicly traded corporations with U.S. exposures,” notes McKay. This market will be impacted by new rules expected to be adopted by the Canadian Securities Administrator in response to Sarbanes-Oxley in 2004, he adds.
Professional liability will remain a tough market, and group errors and omissions continue to skyrocket by 50-300%. “Recent court rulings in the US and scandals involving mutual fund dealers have cast a shadow over the entire underwriting community,” says McKay. “Cover for financial, legal and real estate professionals is almost nonexistent, except for some select capacity in London and Canadian capacity controlled by US head offices.”
These conditions will force organizations to be more creative and look at solutions such as reciprocals and pool mechanisms for their professional liability risks, McKay predicts.
The full report is at www.willis.com.