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Survey Report

Insurance Marketplace Realities 2021 – Property

Property
N/A

November 18, 2020

Until underwriting profitability returns, expect little relief in rate, with continued pull-back in sublimits and tightening of policy wordings.

Rate predictions

Rate predictions: Property
  Trend Range
Non-challenged occupancies +15% to +25%
Challenged occupancies +30% or more

Key takeaway

The current property environment is full of challenges, and we anticipate continued hardening into 2021. Until underwriting profitability returns, expect little relief in rate, with continued pull-back in sublimits and tightening of policy wordings. But be wary of the tyranny of averages — undue (or uncritical) attention to rate hikes can obscure the wide variation we are seeing in this marketplace.

Catastrophe losses and continued attritional losses amid uncertainty surrounding COVID-19 are just a few factors contributing to the sustained rate pressure buyers are experiencing. The level and magnitude of these increases varies greatly by the class of business, account loss history and perceived rate adequacy of the account.

  • This continues to be a results-driven market turn and not one driven by capital depletion. Despite dramatic increases in rate levels, most property underwriters continue to experience dismal financial results due to continued frequency and severity of losses.
  • The elevated frequency of events continues to put pressure on the marketplace; 2020 third quarter natural catastrophe losses for U.S. property/casualty insurance were the largest since the third quarter of 2017 when we experienced hurricanes Harvey, Irma and Maria.
  • The Atlantic hurricane season has moved to the Greek alphabet for only the second time in history. As of late October, we have seen a record 26 named storms, with 10 making U.S. landfall.
  • In addition to an active hurricane season, natural catastrophe losses have come from wildfires, flooding and severe convective storms, including a rare derecho in the Midwest.

The hard market has forced some clients to take larger retentions, self-insure a portion of their risk as well as reduce overall limits in order to manage costs. In these conditions, clients should review their risk tolerance and make more informed decisions to mitigate the impact of the property marketplace.

  • Buyers are looking at risk transfer options, both traditional and non-traditional.
  • Analytics provide important guidance as buyers align offerings in the marketplace and their rapidly shifting needs. The shift toward not only collecting data, but structuring the data to help deliver meaningful insights has moved to the forefront for insureds as well as insurers.
  • Technological/analytic advances are helping determine where buyers will spend critical capex dollars as well where insurers will commit capacity — and how overall risk quality is presented and assessed.
  • Capacity and wording restrictions remain a key focus. Most carriers are demanding company forms vs. broker and/or manuscript forms.
  • Shared and layered placements have seen an increase in the number of markets needed to fill the program, making renewal negotiations more complex and take much longer to finalize.
  • Insurers are attempting to apply hourly occurrence definitions to wildfires, strikes, riots and civil commotion.
  • Due to COVID-19, infectious disease coverage has been extremely limited or outright excluded.
  • Insurers are also pushing “occurrence limit of liability” or “scheduled limit of liability” clauses, as questions over valuations loom. If such clauses prevail, they can introduce significant uncertainty over insurance recoveries at the time of loss.
  • Engineering is being heavily scrutinized, meaning buyers need to address any outstanding recommendations prior to renewal or be prepared to discuss specific plans to address those recommendations.
  • We are seeing continued reduction in capacity for tougher industry classes as underwriters realign their books to meet corporate goals.
  • Complexity of global programs has increased, with fronting carriers being inflexible about making any changes to reinsurance contract wording.
  • Final decisions on pricing and capacity are being driven by home office. While relationships still matter, the quality of your data will impact how favorably you are considered versus your peers.

Risk managers need to set and maintain expectations with senior management. Buyers are challenged not only to fill out distressed programs which in turn garners more rate, but also to find creative solutions for managing the cost of overall risk.

  • This is not a “one size fits all” market; carriers are carefully evaluating risks.
  • Challenged occupancies and loss-impacted accounts have seen rate increases significantly outside the standard variance from the mean.
  • Submission activity has substantially increased, especially for London and Bermuda markets.
  • Demand surge has put pressure on quote dates and underwriter attention bandwidth.
  • Ample renewal timelines are essential.
  • The need to differentiate risk has never been greater.
  • Insurers are underwriting on an account-by-account basis — offering opportunities for buyers:
    • Robust data is critical.
    • Underwriter meetings are encouraged.
    • Careful review of limits is crucial, including overall loss limit and critical cat limits.
    • Loss mitigation must be a focus, highlighting completed recommendations and disaster recovery/business interruption plans.
  • Buyers need to consider options to mitigate rate: restructuring and re-layering, retention options, carrier selection and alternative risk transfer.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Contacts

Gary Marchitello
Chairperson of North American Property Practice

Nancy Woode
Head of Property Broking

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