Demand for stand-alone cyber increases, with premium increases for point-of-sale retailers: Willis

Willis Group Holdings plc predicts commercial property insurance rates will fall in 2015, there will be “modest increases” in aviation rates while terrorism rates will decline or remain flat if the United States government passes a law extending the Terrorism Risk and Insurance Act (TRIA) past the end of this year.

“The stand-alone Terrorism insurance market has experienced a capacity boost, which is driving rates down in low-risk zones, another notable sign of marketplace softening,” London-based Willis Group stated in a press release Tuesday. “However, the forecast for 2015 is contingent on Congress extending the federal terrorism insurance backstop established by the Terrorism Risk Insurance Act (TRIA) of 2002.”

Insurance broker and risk consulting firm Willis Group released Tuesday its Marketplace Realities 2015 report, which includes forecasts for several lines of commercial insurance next year.

TRIA essentially mandates terrorism coverage for commercial policies in the U.S., with the federal government providing a backstop under certain conditions. In July, the Senate passed a bill proposing to extend TRIA through Dec. 31, 2021 but the House of Representatives was considering a different bill proposing a TRIA extension with some changes, before it was adjourned Sept. 30. All House and 33 of 100 Senate seats are up for election Nov. 4.

If a TRIA extension bill is not passed into law, insurance rates “could rise sharply,” Willis warned.

Meanwhile, Willis is forecasting cyber rates for 2015 renewals will change by -2% to +5% for policyholders other than point-of-sale retail. Renewals for POS retail are forecast to be flat to +20%.

“With cyber breaches becoming alarmingly common and increasingly severe, the demand for stand-alone cyber policies is rising,” Willis stated in the report. “Yet rates are competitive, with renewals coming in primarily flat, though point-of-sale (POS) retailers are seeing increases in premium due to recent significant breaches at retailers.”

For airlines, Willis is forecasting a rate change of  +20% to +30% in 2015.

“We have seen significant and high-profile accidents in 2014,” Willis stated. “While these losses do not reflect a deterioration in industry safety, they have impacted some insurers substantially.”

Property rates will fall, “by an average of 10-15% for both non-catastrophe-exposed and catastrophe-exposed risks,” Willis stated. “Property rates have been falling for several consecutive quarters and Willis does not see an end to this trend.” Property losses in 2014 were “benign” so far, other than the earthquake that hit Napa, Calif. Aug. 24, Willis noted.

“Meanwhile, the influx of new capital to the reinsurance market remains steady, and is now pressing on the primary insurance market.”

Capacity in directors’ and officers’ liability insurance is “still extremely plentiful for the vast majority of market segments and industries, including the financial institutions sector,” Willis stated.

“Private companies and nonprofits, which have experienced the highest rates of increase over the past few years, likely will continue to see upward pressure on premium and retentions. Expect the same for health care companies, homeowner/ condominium associations and educational institutions.”

In Marketplace Realities, Willis also includes predictions for rate changes in casualty, workers’ compensation, employee benefits, executive risks, construction, energy (upstream and downstream), environmental, health care professional, kidnap & ransom, marine, political risk, surety and trade credit.

Willis is predicting a mix of rate increases and decreases in environmental insurance.

“The frequency of environmental claims has continued to rise 20% to 30% each year since 2009,” Willis stated in the report. “Highly publicized catastrophic claims have increased regulatory scrutiny on transportation/railroad, mining, energy and pipeline exposures, resulting in the reevaluation of these sectors by underwriters.”