Auto rates are expected to increase between 6% and 12% in 2019, according to the 2019 Insurance Marketplace Realities report published Wednesday.
“Auto liability is a casualty loss leader for commercial insurers and the corrective pricing action over the past three years has not yet overcome deteriorating loss costs,” the report stated. “Insureds should expect continued upward rate pressure.”
Written premium volume in commercial auto has expanded faster than in other market segments over the past two years, and the 7.7% rise in commercial auto premium pricing experienced in the first quarter of 2018 is the highest rate increase in seven years, according to the report.
“Completely unprecedented jury awards of $30 (million to) $40 million for single plaintiff auto accidents are being levied at an alarming rate,” the report stated. “Five years ago, it would have been rare to see an auto accident incur costs excess of $10 million.”
In addition, a strengthening U.S. economy is pushing more vehicles onto the road, triggering an uptick in frequency of auto claims, and the “volatile” legal environment in states such as Florida, has made those claims more expensive to manage, the report stated.
Other casualty lines are expected to face some upward pressure from a variety of hazards. General liability is seen flat to 4% higher, umbrella liability is seen flat to 6% higher, and excess liability is expected to be flat to up 2%, according to the report.
“The North America liability marketplace continues to be hit by significant catastrophic liability stemming from many issues, including California wildfires, the opioid epidemic, #MeToo litigation and liberal class action certification,” the report stated.
However, the workers compensation line will buck the general upward trend as rates in that line are expected to be down 4% to flat, according to the report.
“Workers compensation pricing remains stable mainly because insurers are taking greater control in managing risks, including use of managed care, fee schedules and telehealth,” the report stated. “Despite plentiful challenges related to aging workers, increased opioid usage and higher medical costs, industry innovations addressing these issues have kept a lid on rates and should continue to do so through 2019.”
While opioid overuse is being addressed through drug formularies, marijuana use presents challenges, the reported noted.
“As more states legalize marijuana use, complicated claim scenarios arise,” the report stated. “Increased use will impact the viability of drug screening programs.”
On the property side, non-catastrophe-exposed risks are expected to see rates flat to 5% higher, while cat-exposed risks will likely see a projected increase in the range of 2.5% to 7.5% and cat-exposed properties with losses could experience rate increases of 10% or more, according to the report.
“Hurricanes Florence and Michael will not be significant market events,” the report stated. “Absent any significant losses or market-changing events through the end of the year, we expect the current rate environment to continue.”
Despite ongoing mergers and acquisition activity and a continued push for optimal use of capital, overall industry capital remains strong, according to the report.
“The influx of alternative capacity has created a more stable environment with less volatility following industry losses,” the report stated. “We have seen only small segments of hard market activity driven by a few loss-sensitive occupancies and cat-exposed geographies. Heavily loss-impacted regions such as the Carolinas, Florida, Georgia and Texas are likely to see tougher renewals, especially for buyers who experienced losses in 2017 and 2018.”
In the cyber line, rates are expected to be in the range of 3% lower to 5% higher, with large-account buyers facing increases at the high end of the range for both primary and excess cover.
“Insurers have tightened pricing and retention guidelines for companies that have not addressed vulnerabilities,” the report stated. “With claim activity or recent incidents, increases may be higher.”
“Where organizations have demonstrated increased levels of security and internal policy controls, underwriters have offered premium decreases. Increased competition in the marketplace has also played a factor as insurers fight to write the better risks,” the report continued. “Excess capacity is very competitively priced, often below 60% of the underlying primary rate.”
Beyond firming market conditions, the other notable trend expected to impact risk transfer strategies for buyers in 2019 is the resurgence of mergers and acquisitions, according to the report.
“So far, recent M&A has not had a material impact on rates and capacity, but it is reducing the number of competitors in the field,” Joe Peiser, head of North America broking for Willis Towers Watson, said in a statement Wednesday. “Given the capital fluidity that is the industry’s new normal, we don’t foresee a dramatic impact on rates but do expect consolidations will result in more underwriting discipline, which may serve as a backstop against another free fall in rates. Another important consideration for buyers confronting new carrier combinations is a potential change in an insurer’s claim handling philosophy and the strictness with which policy language is enforced.”
Please call on us to review your pricing and coverage with your current insurance carriers as we at Massey, Clark, Fischer would love to give you our “second opinion”.