When three aggressive hurricanes smashed into North America in 2017, the vast majority of property and casualty insurers thought there would be a knee-jerk market reaction in the form of rate increases across a host of business lines. That was not the case.
Why? A lot of rate stability can be attributed to the presence of alternative capacity, especially in catastrophe-exposed lines, which helped keep the P&C markets ticking over. That’s certainly the case for the inland marine insurance market, according to Rich Soja, global head of inland marine and North American head of marine at Allianz Global Corporate Specialty (AGCS).
“I would describe the inland marine insurance market in the US as competitive but stable,” Soja told Insurance Business at the Wholesale & Specialty Insurance Association (WSIA) annual meeting.
“In the past 10 years, we’ve seen a lot of new entrants which has really kept the market in a challenging position. Even if one carrier decides they’re going to firm up in a particular area, there’s always somebody willing to step in. With that said, 2018 hasn’t been radically different to 2017. I would call it stable, with pockets of challenge.”
The “pockets of challenge” Soja referred to mainly include the more esoteric lines of the inland marine business, especially those impacted by the 2017 catastrophe season. He gave the example of carriers who write coverage for floorplan businesses that keep automobiles and machinery out in the open.
“That’s a very challenging area of inland marine insurance, and post-hurricanes Harvey, Irma and Maria, that market really tightened – rates are up, deductibles are up, and capacity is down,” Soja explained. “The floorplan business only represents a very small part of the overall inland marine market, so it’s not driving the line of business one way or another, but it’s one example of a very peculiar area that has tightened up post-hurricanes.”
There was a general expectation after the 2017 catastrophe season that rates in casualty lines would go up. However, like many markets, rates in inland marine insurance remained stable – apart from in hard-hit areas like Puerto Rico and Miami Beach where they saw some movement.
Soja commented: “The days of a single event in one area of the country impacting a nationwide movement of rates and capacity are over. I think that’s due to the availability of capacity in the inland marine market. Even if there was an enormous event that historically would have resulted in a 6-18 month hardening of the market, now that doesn’t happen because there’s so much alternative capacity out there keeping their powder dry and waiting to jump in – especially in catastrophe-related business.”
An attritional deterioration in a line of business where everybody’s losing money, and it’s nothing to do with a single catastrophe, is “a completely different” and much more concerning story, according to Soja.
“For the most part, a lot of inland marine business is attritional – low limit, low deductible, high-frequency – which means it’s a rating game,” he said. “So, if your rates don’t keep pace with either the cost of inflation on a particular replacement cost base, or if the market gets too competitive – that’s when things start to deteriorate over time.
“I think the industry is beginning to see a nudging up of attritional losses, not just catastrophe losses, and that’s something AGCS is paying very close attention to.”