US Property Insurance Rates Keep Falling

When the rate reductions of -12.5% to -17.5% we predicted for Q2 came true for many, we saw a lot of smiles on the faces of insurance buyers. The reductions, and the smiles, continue. In fact we are now seeing outlier reductions of -20% to -25% – on some CAT-driven business and on accounts with not insignificant loss history.

The simple fact is that supply continues to outpace demand. The combination of relatively low levels of widespread, catastrophic loss events and the accumulation of capital looking for returns remain the primary drivers of the property marketplace.

A word we sometimes use for this marketplace is “over-capacitized.” Capacity keeps coming in and the competition that results does the rest. Insurers can be aggressive and opportunistic, especially in search of new business. For organizations with attractive risk profiles, the marketing process these days can resemble a feeding frenzy.

What to Do with this Information

The smart risk manager, of course, will do more than enjoy the ride. Current conditions offer opportunities to test the marketplace and/or challenge incumbents to make renewals competitive. Another tactic is to pursue two- and three-year rate deals (with sliding rates for future years), which are becoming increasingly common at the negotiating table. We are also seeing guaranteed rate deals with no-loss ratio components.

The savings in the property spend, however, is becoming significant enough to raise strategic considerations across the risk management space. While the C-Suite will be glad to capture the savings with an eye on the bottom line, a case could be made that the money saved is best shifted to other risks that are on the rise. Take cyber risk. The cyber marketplace continues to mature as the exposures of the cyber world approach the fundamental nature of the typical P&C risks assigned to the risk management function. Risk managers may be able to use a broad strategic perspective to get the most out of the carriers that want their business.

What Lies Ahead

In the July 1 issue of WillisRe’s First View, some slowdown in the decline in reinsurance rates was noted. This could in theory have something of a braking effect on the decline in Property rates, but the change in the marketplace seems modest and so, we expect, will be its impact on the primary side.

Meanwhile, the hurricane predictors are again calling for a relatively light year for catastrophe risk in the Atlantic Basin for the wind season that is now upon us and will soon be approaching its peak. If those predictions hold true, the resulting policyholder surpluses could set new records, increasing further the downward pressure on property rates. Once again, our property prognosticators could be pointing the way to even sunnier days for Property insurance buyers.

 


 

Dave Finnis Guest blogger Dave Finnis is National Property Practice Leader for Willis North America. David started in insurance in 1982 as a property broker with  in New York and has been on the broker side his entire career. He joined Willis in 2009 to run the Willis National Property Practice.

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