Second Quarter Sees 1% rise in Commercial Lines Rates

Closer attention to underwriting and losses has led to premium increases averaging 1% in the second quarter of 2017, continuing an upward trend this year. The transportation sector, most notably auto-related exposures, is seeing the highest increases, up to 4%, according to a report released today by MarketScout.

“We now have two consecutive quarters of composite rate premium increases. Insurers are adjusting pricing as they should, based upon losses incurred, expense loads and targeted returns on equity,” Richard Kerr, CEO and Founder of MarketScout said in a statement.

By account size, organizations smaller to medium-size saw the highest premium increases. Small accounts (under $25,000 premium) increased from up 1% to up 2%, medium accounts ($25,001 – $250,000) went from flat to plus 1%, large accounts ($250,001 – $1 million) were unchanged and jumbo accounts (more than $1 million) were down 1% compared to a drop of 2% the prior quarter.
By coverage class, commercial property and inland marine adjusted from down 1% in the first quarter, to up 1% in the second quarter. Commercial auto rates rose from up 3% to up 4%. EPLI also went from up 1% to up 2%. Fiduciary adjusted downward to flat or no increase compared to up 1% in the prior quarter. All other coverage classifications were unchanged from the previous quarter, according to the report.
By industry class, public entity rates moderated from up 1% to flat. Transportation risks experienced slightly lower rate increases with second quarter rates up 4% compared to 5% first quarter.

First Quarter 2017 Sees Upward Rate Movement

U.S. insurance buyers may see higher rates this year, as the composite rate index for commercial accounts increased plus 1% for the first time in 20 months, MarketScout reported today.

Rates for business interruption, inland marine, workers compensation, crime, and surety coverages held steady in the first quarter, while rates for all other coverages either moderated or increased.

“The plus 1% composite rate index was driven by larger rate increases in commercial auto, transportation, professional and D&O rates,” Richard Kerr, CEO of MarketScout said in a statement. “We also recorded small rate increases in the majority of coverage and industry classifications. So, 2017 begins with insurers moving away from the rate cuts of 2016.”

Small accounts (up to $25,000) were assessed a 1% rate increase in the first quarter of 2017. Medium accounts ($25,001 to $250,000) were flat, while both large ($250,001 to $1 million) and jumbo accounts (more than $1 million) saw rate decreases of minus 1% and minus 2% respectively, MarketScout said.

By industry class, every industry experienced a move toward higher rates in the first quarter, with transportation seeing the largest rate increase at plus 5%.

Insurance Rate Declines Moderate as Cyber Shines

Global insurance rates declined for the 15th consecutive quarter, remaining competitive for most of 2016, according to the Marsh Global Insurance Market Index, Q4, 2016, which tracks industry data.

Insurance rate decreases moderated in the fourth consecutive quarter as global property rates continue to drop at a greater rate than other lines, mainly due to overcapacity and a lack of insured losses, according to the report.

“The last quarter of 2016 marked the 15th consecutive quarter in which average rates declined, largely due to a market with an oversupply of capacity from traditional and alternative sources and a lack of significant catastrophe losses,” Dean Klisura, global industry specialties and placement leader at Marsh, said in a statement.

After peaking at a 5% global quarterly rate of decline during the fourth quarter of 2015, that rate moderated throughout 2016. “The fourth quarter of 2016 marked an entire year (four consecutive quarters) in which the average rate of decline for global insurance rates moderated—a first since Marsh initiated the index in 2012,” says the report.

Worldwide, rates declined by 3.1% while the U.K. and Continental Europe saw the greatest regional drops at 4.8% and 4.2% respectively. Latin America saw the smallest regional drop at just 0.5% as the U.S., Asia and Pacific regions hovered midway with declines of 3.0%, 2.7% and 2.2%, respectively.

By business line, global casualty lines had the slowest rate decline at 1.9%, followed by Marsh’s Global FinPro (financial and professional) at 3.0% and then global property with the largest decline of 4.2%. U.S. rate declines reflected global figures with U.S. casualty rates declining in the fourth quarter at a rate of 2.1%, U.S. FinPro at 2.5% and U.S. property at 4.8%.

By contrast, the Marsh report tracked rising U.S. cyber liability rates, up 1.4% for Q4 2016, which was actually the smallest increase since rates started rising in Q3 2014 at a rate of 4.8% before peaking at 20.0% in Q2 2015, then beginning a steady decline toward the latest quarter. Despite steadily rising cyber liability rates, the report notes that “the number of clients purchasing cyber insurance increased 25% from 2015 to 2016 across all industries, with the greatest overall take-up in healthcare, communications, media and technology.”

Insurance markets in the U.K. and Continental Europe remain competitive, the report said, as Latin American casualty and financial and professional liability rates increased. Casualty rate increases were largely due to rising auto insurance prices, particularly in Colombia and Mexico, where Marsh says it has a large market share.

Some rates in the Pacific region notched increases, with casualty rates up 0.4% and financial and professional liability rates up 1.7%. Asia’s commercial insurance market remains competitive, according to the report.

While the report appeared to paint an overall picture of industry-wide softness, there was some suggestion of a turn in the tide. “Early indications that capacity may be moderating and that combined ratios may be increasing could be harbingers of looming rate increases as carriers seek to boost profitability and keep combined ratios below 100%,” Marsh says in its report.

In addition to looking back with its rates report, Marsh also takes a look forward in its “U.S. Financial and Professional Market in 2017: Our Top 10 List.” The company states that decreases in the directors and officers insurance market, continue “nine straight quarters of rate decreases.”

The Top 10 list goes on to say that cyber insurance will evolve as “risk professionals will need to address evolving cyber risks across multiple platforms,” and adds that financial and technology industries are converging at an increasing pace. “Financial companies will increasingly see exposures that were historically the domain of the technology industry,” it says.

In its “Casualty Insurance Outlook: Good News for Buyers in 2017,” Marsh says 2017 is “generally a buyer’s market for casualty insurance buyers, who typically are seeing strong competition and ample capacity for most casualty lines.”

2016 Ends with 1% Average Rate Reduction

The year ended with few surprises in commercial insurance pricing in the United States, after 2016 started out with a composite rate decrease of 4%. In ms-barometerApril, rates began to moderate and continued reductions of 1% to 2% per month. The year closed with a composite rate reduction of 1%, according to MarketScout.

While the soft market has been going for 16 months, that period seems longer because for the first eight months of 2016, the composite rate was flat to plus 1% before dropping into negative territory, MarketScout said.

“We have been tracking commercial property and casualty rates since 2001. Generally, the soft or hard market cycles last at least three years,” Richard Kerr, CEO of MarketScout, said in a statement. “We expect more moderate rate reductions for the coming year for all but a few lines of business.” An increase in interest rates could accelerate rate reductions, he added.

By coverage classification, commercial property moderated in December, from down 3% to down 2%. Workers’ compensation rates dropped from down 1% to down 2%. EPLI and crime were the only coverages that saw rate increases—both lines of coverage went up by 1% to up 2%. The composite rate for all other coverages was unchanged.
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By account size, there were no changes from November to December 2016.
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By industry classification, contractors adjusted from down 1% to flat. Transportation accounts saw ongoing rate increases across the board, jumping from up 3% in November to up 5% in December.
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