Property Insurance Rate Trends – The Buyers Market Continues (article)
Autumn policy renewals continue to reflect stable industry conditions with commercial rates decreasing for the ninth consecutive quarter in most lines. Property insurance showed the largest rate declines; casualty rates decreased more moderately. Although recent weather events (e.g., severe flooding in the Carolinas) have not been factored into the latest reporting, lower than usual catastrophe losses over the past three years have contributed to this trend of steady or declining rates. This favorable loss experience, combined with abundant capacity, leads us to believe that insurers will compete very aggressively in 2016 with continued double digit reductions available to most insurance buyers.
In addition to lower rates, buyers are seeing improved terms and conditions in their policies. There is a resurgence of multiyear policies, some of which may or may not be tied to loss ratio requirements. Lower windstorm deductibles have been noted in CAT zones, both in the Gulf Coast and in California. This market is just another cycle but it will be prolonged compared to other market swings because of the presence of plentiful outside and alternate capital.
New to the overall picture is the potential impact of technology – specifically, the use of data analytics to better predict potential loss. Data insights will contribute to better informed decisions on risk selection which can be expected to contribute to lower losses, and in turn, would continue the trend of stable or decreased pricing. In addition to the impact on rates, companies will be better able to stay informed on the changing risk environment and latest risk management techniques that can help to mitigate their financial exposures.
A Few Notable Exceptions
Cyber. While decreases were seen across regions and in most major lines of business, notable exceptions were seen in specialized coverage, led by a growing cyber insurance market. Considering the rising frequency and severity of data breaches at corporate and government entities, this trend is expected to continue as the cyber insurance market matures, new insurers, products and capacity come to market and the true extent of companies’ cyber exposure is realized.
Habitational. Poor loss experience in the multifamily dwellings sector continued to return higher property insurance rates and declining limits last year, even while other segments experienced lower or stable rates. Early in 2015, few insurers were willing to write portfolios with significant habitational components, but as the year has progressed, the multifamily market has begun to experience rate relief and more carriers are targeting this business. Clients with good loss performance are seeing rate reductions; those with a few clean years since adverse events may see larger rate decreases and better terms. Clients who continue to have unfortunate loss experience can expect flat renewals to slight increases, depending on the severity and frequency of their claims activity. This newly competitive environment is contributing to a variety of options for buyers who are particularly rewarded when they are willing to be creative with deductibles.
Real estate investment trusts (REITS). Non-traded real estate investment trusts and mortgage REITs felt financial and professional liability insurance pricing headwinds to start 2015. What’s more, real estate companies that experienced dramatic changes to their risk profiles generally saw pricing that differs from the average. Litigation trends could also affect financial and professional liability insurance rates and terms.
Overall, the buyer’s market continues, with rates continuing to slide over the first three quarters of the year . Capacity continues to be high, capital has been plentiful and additional capital will be entering the market through the end of the year. Buyers may also benefit from improved terms and deductibles, even in selected CAT zones. This is an excellent opportunity for insurance buyers to strengthen longstanding relationships with carrier partners and brokers, and put into place coverage and structure that will lower fixed costs insurance.