What to Expect for Commercial Insurance Pricing for 2018: WTW’s Marketplace Realities

 

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 2018 Marketplace Realities 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.

Insurers around the globe are looking to raise rates after what is likely to have been their most costly quarter on record. American International Group Inc (AIG.N) said recently it would pursue double-digit rate increases and bolster reinsurance, following $3 billion in third-quarter catastrophe losses.

“The marketplace is going to react, and buyers need to be ready,” Willis Towers Watson wrote in the report. Insurers will have a clearer sense of their losses when policy renewals begin next year, the company said.