Insurers in North America had it relatively easy for a number of years prior to 2017. They enjoyed a buyers’ market for insurance, giant strides with regards to innovation, and capital flowed generously. Then struck the historic natural disasters of 2017.
Hurricanes Harvey, Irma and Maria, two major earthquakes in Mexico, America’s costliest wildfire season to date, dramatic flooding, and significant hailstorms all arrived within the space of a few months, waking the insurance industry from its daze of ease.
The big question is: what will happen to the buyers’ market and how will the catastrophes affect insurance rates?
Practice leaders at the global insurance brokerage and consulting firm USI Insurance Services predict carrier profits to thin out as a result of the 2017 catastrophes. In the 2018 USI Insurance Market Outlook, the experts predict short- to intermediate-term property rates to increase overall—especially in catastrophe-prone areas – and for rate increases to spill over into casualty and other lines of insurance.
The report suggests 2018 will usher in more rate increases than decreases, or flat renewals for most coverage lines. USI anticipates insurance carriers taking a more stringent underwriting approach, and brokers finding new ways to differentiate risks.
“The property market is obviously going to see some changes related to the events of 2017, which was really an unprecedented year,” said Brian Dove, national real estate practice leader, USI Insurance Services. “The early trends suggested reinsurance prices would increase in the 25% range, but renewals eventually came in at around a 5% increase, which was slightly unexpected.
“Obviously, the portfolios that were exposed to natural catastrophe and suffered losses are going to take the brunt of the rate increases. Those with natural catastrophe exposures that did not suffer losses are going to see some increases as well, just for the cost of capital. Non-catastrophe-exposed portfolios are likely to see flat to 5% rate increases depending on their risk management strategies, their losses and so forth.”
Rating pressures are carrying over into casualty lines, according to USI. The benign natural catastrophe period leading up to 2017 is said to have masked profitability in some casualty lines. Now property has taken a huge hit, USI expects the profitability challenges in the casualty markets to be exposed.
There are ways for insurers and brokers to offset the significant pressures of rate increases. It’s a broker’s ability to drive a specific client’s details, mitigation strategies and business continuity procedures in order to differentiate the client and their unique exposures in the marketplace, explained Dove.
Doug O’Brien, national casualty & alternative risk practice leader at USI Insurance Services, added: “For brokers and insurers to offset some of the pressures of rate increases, they really need to think about differentiating their risk portfolios. They need to be prepared, proactive, and able to articulate their risk profiles differently to other companies. Wherever they can, it’s great for brokers to get a head start with regards to preparing clients for the market environment ahead.”