SAN FRANCISCO – Insurance buyers should expect a slowdown in interest rate hikes for many industries in the coming renewals, but the cyber liability market will remain difficult and real estate insurance companies will continue to focus on valuations, say brokers and insurance companies.
While insurance companies have driven significant increases over the past three to four years – often by double digits or higher – many have reported improved insurance results and new players are creating more competition in the market.
But inflation and global political uncertainty remain worries, brokers and insurance companies said in interviews last week at Riskworld, the Risk & Insurance Management Society Inc.̵7;s annual conference in San Francisco.
“With a few notable exceptions, it feels like things are stabilizing and we’re at the top,” said Marc Kunney, president, risk management, at EPIC Insurance Brokers & Consultants in San Francisco.
Insurance companies that have reduced their capacity, adjusted their bookkeeping and raised interest rates over the past four years report profits and want to grow, he said.
“It feels like they’re playing offensive now,” said Mr. Kunney.
Outside of cyber-liability, certain emerging risks and lines affected by the conflict in Ukraine, such as aviation and political risks, buyers should see interest rate hikes with single-digit figures for most lines, he said.
When interest rate reports for the first quarter of 2022 are released, “we are likely to see a continued trend in moderate rate hikes, despite cyber risk,” said Chris Lang, investment manager for the United States and Canada at Marsh LLC in New York.
Most insurance companies have settled their accounts and have achieved “interest rate adequacy”, he said. “If you look at the results, they looked pretty positive in 2021.”
The real estate insurance company FM Global has raised prices and reviewed its business book after paying large disaster losses in 2017 and 2018, said Malcolm C. Roberts, President and CEO, of Johnston, Rhode Island.
“Like everyone else, we had to get the level set, but it’s not just the interest rate; a lot of deductible erosion had happened,” says Roberts.
Further strengthening of the market is likely to be caused by supply chain disruptions, rising inflation and losses along certain lines from the war in Ukraine, he said.
Prices “are now picking up speed again in the industry”, he said, but “for FM Global, into 2022 we feel at the macro level that we have the course we need.”
Some sectors, such as heavy industry, and individual policyholders may still see higher rates, Roberts said.
“There’s a lot of competition increasing on soft rental companies,” such as retail properties, he said.
In the real estate sector, insurance companies continue to be concerned about insured values and whether they keep pace with inflation, says Lang from Marsh. “Everything costs more to fix than it did three months ago or six months ago,” he said.
Axa XL, a unit of Axa SA, adjusted some of its business books and bought more reinsurance for certain lines last year and plans to grow, says Scott Gunter, New York-based CEO of the commercial insurance company.
Higher inflation, increased catastrophic losses, higher court rulings and settlements and concerns about losses on special lines from the war in Ukraine are likely to lead to more interest rate hikes, but not at the same level as interest rates have risen in recent years. sa.
For exaggerated accident risks, for example, buyers paid steep increases over the past four years, Gunter said.
“The increases they are seeing will still be positive. But they will be high single digits, low double digits, not as they saw in 2021,” he said.
Cyber-liability is an exception, with prices still increasing by 100% for some buyers, Gunter said.
“As the loss trends are, I do not want to see it disappear as soon. It is a question of price, but for customers it is also a question of capacity,” he says.
“The risk landscape is definitely more volatile, more complex, more interconnected,” says Lambros Lambrou, CEO of commercial risk solutions at Aon PLC. “As a result, the demand for data, insight and predictive modeling is changing significantly.”
In addition, risk managers look at their risk portfolios as a whole as prices and capacity have increased and decreased in different coverage lines, he said.
“Customers say, ‘We need to have a holistic view of all this so that we can make better decisions about how to choose to dial up and down in certain areas,'” Lambrou said.
For example, a policyholder who wants to buy more limits for cyber liability may be more willing to retain more traditional property / accident risks, which are more predictable, he said.
But the pressure also remains in some areas of the traditional real estate / accident market, experts say.
Claims from storms in Texas in February 2021 and extensive claims for forest fires in the western United States are driving up prices and shrinking the capacity for real estate disaster insurance, says Chip Stuart, sales manager in Los Angeles and North American real estate agent at Hub International Ltd. .
“Wildfire is more expensive and harder to place than earthquakes now,” he said.
Sharp increases in court settlements and judgments limit liability capacity, Stuart said.
“The awards are getting bigger, and it’s not that they have to pay it every time, but they have to pay the defense,” he said. “These things drag on for three or four years, and they’re hard to reserve for.”
In addition, insurance companies with excess liability want to add higher levels as losses increase, says Mary-Beth Hahn, based at Summit, New Jersey, head of Hub’s North American complex risk practices.
For example, a surplus insurer that previously joined a $ 1 million truck program is now looking to put over $ 3 million, she said.
“You need to be able to build the primary program and then the excess above it, so it takes a little more time and more creativity,” Hahn said. For example, Hub more often places parts of programs with international insurance companies, she said.
“The market is generally feeling better, but I still think there’s a lot of concern,” said Mike Fallon, president, major accounts, at Liberty Mutual Insurance Co.
So-called social inflation, economic inflation, supply chain disruptions and the war in Ukraine all contribute to a sense of insecurity for insurers, he said.
“The path of interest rate hikes has slowed down, but there is still a pretty good distribution around it,” he said. “Carriers still need to think about price in terms of loss-cost trends.”