The trend remains positive for insurance buyers, as softening conditions accelerate in 2015. Line-by-line details are available in our spring update to Marketplace Realities 2015,the long-running series featuring insights from Willis North America experts. But here’s an overview of where we see rates going.
Not a Cliff, but a Waterfall
Last fall in this space we said that insurance rates were possibly at the edge of a cliff, even standing with one foot over the edge, about to plummet down. So far, they have not taken the plunge. They have, however, continued to drop in many cases, especially in Property. So we are not retreating from our dramatic geographic metaphor. But we will take this opportunity to update and perhaps correct it.
Rates on most lines of business are meandering downstream, with some approaching white water rapids and others possibly headed for a waterfall. Here’s the key difference between the cliff and the waterfall: Going over a waterfall, unlike jumping off of a cliff, is survivable. With policyholder surplus at record levels, we have little doubt about the resilience of the carriers navigating these turbulent waters.
And now, please forgive us if we pursue the analogy a bit further. Some lines of business are seeing some uptick or flattening – hitting sandbars or boulders in the riverbed that may slow the descent. Some lines of business – we’re thinking of Casualty and Executive Risks lines – could be primed to shoot the rapids and begin to pick up downward speed, yet for many buyers, depending on their industry, geography and loss history, rates may get caught against some rocks or some branches wedged in the water and may not actually fall at all.
Like Nature herself, things can get a little chaotic out there. Overall, however, we anticipate a marketplace continuing to offer opportunities for buyers. With weather and other catastrophic losses remaining below average for another year, and capital hungry for a somewhat predictable return, we see the forces of supply and demand working like the melting snowpack after a rough, snowy winter: the rivers will be full and flowing, bringing along most – though not all – riders.
Beyond the River
The challenge for the risk professional is to look beyond the river and take in the whole landscape. Risk management has always been about more than sitting on the river bank and watching the waters rise to flood-stage in a soft market or dry up like a creek bed during August in a hard market. Never has that been more the case than it is today. Why? Because risk profiles are changing.
- The threat of Cyber-related losses seem to be a matter of if, not when.
- As the push for global markets clashes with the realities of political upheaval and war in many places on the planet, Political Risks are increasingly unavoidable.
- Even if Nat Cat losses are down in the aggregate, the sense of a changing climate bringing an increased potential for widespread catastrophe in heavily populated areas is unavoidable.
As risk profiles change, so do the demands on risk professionals to bring more analytic exactitude and strategic depth to the decision-making process. Part of that is balancing the pressure to keep costs down and the need to maximize resilience for the risk transfer spend – in other words, to make sure that the organization is sufficiently protected so that its greater goals can be met. Rates heading downstream is good news, but that does not mean all the answers are simple or apparent. As always, we are ready to ride the roughest waters with our clients, ready to take whatever plunge or twists the marketplace currents and torrents may send their way.
Key Price Predictions for 2015
|Non-CAT Risks:||-12.5% to -15%|
|CAT-Exposed Risks:||-12.5% to -15%|
|Umbrella/Excess:||-10% to flat|
|Workers’ Comp:||-2.5% to +2.5%; up to +8% in CA|
|Auto:||-10% to flat|
|Directors & Officers:||-5% to +5%|
|Errors & Omissions:||Flat to -5% or more for programs with good loss experience; +5 to +20% for programs with poor loss experience|
|Employment Practices Liability:||-3% to +3%|
|Fiduciary:||Flat to +5%|
|Flat to +5%; +10 to 125% for POS retailers; more competitive for first-time buyers|
|Airlines:||Flat to +10%|
|Aerospace:||-10% to flat|
|Self-Insured plans:||+5% to +6%|
|Insured plans:||+8.5% to +9.5%|