Willis Group Holdings expects commercial insurance buyers to face improved market conditions in 2014, due in part to declining rates in the property insurance line and an easing of recent upward pressure on rates in many other lines of insurance coverage. These are key findings in Willis's semi-annual 2014 Marketplace Realities report, which serves as a guide for North American insurance buyers preparing for upcoming 2014 insurance program renewals.
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. The forecast reflects a change since Willis published its Spring Edition of Marketplace Realities where modest decreases were expected for non-catastrophe exposed risks and rate increases were expected for catastrophe exposed accounts. 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.
Overall, 14 insurance lines will likely see rate increases, while eight will see decreases, according to Willis experts. 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.
In the employee benefits space, employers remain preoccupied with health care reform, and while the regulatory changes may be a contributing factor to increases in health care costs, rate hike predictions are slightly down from earlier in the year: falling from an overall prediction of 8%-10% increases to 6-7% increases for self-insured plans and 8.5-9.5% for insured plans. Employers continue to take aggressive steps to counter these rising costs.
In introductory remarks, Eric Joost, COO of Willis North America and Senior Editor of Marketplace Realities, addresses the controversy accompanying 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," Joost writes. 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.
More certain, Joost says, is the reason for the evolution in the industry: "It's the advent of big data, insurance style- the increased access and ability to work with the data related to the possibilities of risk transfer." He notes that big data is behind WillPLACE, Willis's ground-breaking placement platform. He expects that "Big data will be a source of much innovation in the years ahead."
The 2014 edition of the flagship publication for Willis North America is subtitled "Innovation and Continuity," to reflect the changes underway in the industry and the evolving role of the insurance broker into that of "an analytical broker," Joost writes.
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