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Commercial insurance buyers should brace for rate increases for 2018 insurance as the industry continues to tally losses following one of the most financially disruptive hurricane seasons in history, according to global insurance advisor Willis Towers Watson.

According to WTW’s report, underwriters will be pushing for rate increases as they reconcile what is expected to be a significant earnings hit for many, and a potentially material capital hit for some. For underwriters needing to dip into capital to fund their losses, the pressure to raise rates to replenish that capital could be unyielding. For buyers, this may mean the long soft market for commercial property insurance could be over, at least temporarily, and there may be upward pressure on rates in other lines of insurance, according to the report.

Joseph C. Peiser, head of Broking for Willis Towers Watson North America, urged organizations to begin preparing now for changing market conditions.

“Now is the time for organizations to catalog the positive differentiators in their risk profile to set themselves apart from the pack at renewal time,” he said. He also recommends that insureds “define their risk tolerances so they know where their ceiling is” if rates and retentions spike.

In the property market, where insured losses from recent catastrophes are expected to exceed $100 billion, Willis Towers Watson experts expect “some type of market correction” after insurers have a chance to estimate their ultimate losses. However, the pricing impact to buyers will likely not be manifest until the first or second quarter of next year. While there is still a high degree of uncertainty, rates are forecast to potentially rise 10 percent to 20 percent for catastrophe-exposed risks and 20 percent to 25 percent for catastrophe-exposed risks with recent losses. Other property insurance buyers can expect flat rates or low single-digit increases.

Meanwhile, according to the report, several factors could dampen the upward pressure on rates, including still-abundant capacity and what experts view as “still eager” alternative capital providers.

Casualty rates, which had begun to drift downward for many organizations, are predicted to be flat or increase by small amounts as pressure from the catastrophe losses spills over into other lines. Auto rates for businesses will maintain their single-digit increases, while workers’ compensation rates are expected to be stable. For product recall, Willis Towers Watson experts predict rates to range from –5 percent to +5 percent.

The report anticipates many specialty insurance lines of business will “follow their own supply and demand curve.” For example, the directors and officers (D&O) liability marketplace outlook is “not as soft,” as underwriters are mindful of potentially adverse D&O claims activity and looking for ways to avoid compounding the year-over-year impact of declining rate. For terrorism insurance, buyers should expect flat renewals rather than the decreases they have seen in recent renewals. Meanwhile, in the environmental insurance market, the high double-digit increases for combined environmental-casualty programs have begun to ease.

In the the cyber liability insurance market, demand continues to rise and supply of capacity is “more than keeping up,” according to the report. Despite a string of high-profile breaches, cyber insurance program renewals for both primary and excess cover are averaging only single-digit rate increases. Underwriters have offered premium decreases to organizations that are able to demonstrate increased levels of security and internal policy controls. The report forecasts rate increases of up to 5 percent for 2018.

Key Price Predictions for 2018

Source: Willis Towers Watson,

Topics Catastrophe Commercial Lines Business Insurance Market Willis Towers Watson