Commercial insurance buyers to see improved market conditions

New capacity has softened the property insurance market: report

Commercial insurance buyers can expect improved market conditions in 2014, according to a new Willis Group Holdings report.

Willis’s semiannual 2014 Marketplace Realities report states this improvement is due in part to declining rates in the Property insurance line and an easing of upward pressure on rates in many other lines of insurance coverage.

Willis expects Property rates to fall an average of 10-12% for non-catastrophe-exposed risks, while risks exposed to natural catastrophes such as hurricanes will likely decrease in the 5-10% range.

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The downward pressure is being driven by an influx of alternative capital to the insurance industry, particularly the segment devoted to catastrophic Property risk. For commercial Casualty lines, buyers should expect a continuation of single-digit increases, with higher rate hikes in some states, such as California.

In his introductory remarks, Eric Joost, Chief Operating Officer of Willis North America and senior editor of Marketplace Realities, addressed the controversy surrounding the new capital that is impacting the insurance marketplace.

“The reaction has not been all positive, to say the least, especially with respect to the new sources of capital,” he wrote. However, “some of this represents some real innovation – in an industry often criticized for conservatism and a lack of innovative progress. From our perspective we see clear benefits to these new vehicles, because our perspective is really that of our clients. For our clients – insurance buyers – the increase in supply of capital makes a more inviting marketplace,” he added.

Read: New capital a threat to reinsurers

Overall, 14 insurance lines will likely see rate increases, while eight will see decreases, according to the report. However, in many cases, the expected level of rate increase is moderating, and in some cases, predictions from the spring have reversed. For Errors & Omissions and Trade Credit insurance, spring predictions of increases have been supplanted by expectations of modest decreases or flat rates. Two exceptions are Political Risk and Terrorism, where market-hardening forces are gathering momentum.

Willis expects rate increases in Casualty insurance lines, including Workers’ Compensation and Auto, Employee Benefits, Cyber, Executive Risks, Crime/Fidelity, Health Care Professional, Construction, Kidnap & Ransom, Political Risk and Terrorism. Meanwhile, rates are expected to fall in Property, Errors & Omissions, Aerospace, Energy, Environmental, Marine, Surety and Trade Credit.

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