Insurance Marketplace Realities 2019 — Casualty

November 6, 2018

Rate predictions

  Trend Range
Workers compensation No change or slightly up –4% to flat
Auto liability Increase +6% to +12%
General liability No change or slightly up Flat to +4%
Umbrella No change or slightly up Flat to +6%
Excess liability No change or slightly up Flat to +2%

Key takeaway

While workers compensation renewal rates remain soft, largely supported by combined ratios below 100, liability lines continue to be moderately stressed in North America. Although global M&A activity has led to the consolidation of insurers underwriting casualty business in North America, the overall impact on pricing and available capacity has been minimal.

Near-term workers compensation pricing should remain soft amid an insurance marketplace with excess capacity, a rising exposure base and three years of underwriting profitability.

  • The U.S. has seen a 1.8% average increase in employment over the past two years, with states reporting employment increases across all sectors.
  • Improvements in medical care and adoption of return-to-work programs have led to a decrease in lost-time claims.
  • The growth of telemedicine and its adaptation into workers compensation practices should provide quicker, more efficient access to high-quality medical care and mitigate associated medical expenses and lost time from work — in turn leading to reduced claim severity for carriers.

Auto liability is a casualty loss leader for commercial insurers and the corrective pricing action over the past three years has not yet overcome deteriorating loss costs. Insureds should expect continued upward rate pressure.

  • Written premium volume in commercial auto has expanded faster than in other market segments over the past two years; the 7.7% rise in commercial auto premium pricing in Q1 2018 is the highest rate increase in seven years.
  • Completely unprecedented jury awards of $30 – $40 million for single plaintiff auto accidents are being levied at an alarming rate. Five years ago it would have been rare to see an auto accident incur costs excess of $10 million.
  • From 2013 to 2017 the U.S. economy pushed more vehicles on the road than ever before. During that time drivers logged 300 billion more road miles than in the previous five-year period. This has led to an uptick in frequency of auto claims, and the volatile legal environment has made those claims more costly to manage.

While capacity in excess liability remains abundant, the frequency of catastrophic liability claims impacting umbrella and excess towers has become troubling for insurers.

  • The North America liability marketplace continues to be hit by significant catastrophic liability stemming from many issues, including California wildfires, the opioid epidemic, #MeToo litigation and liberal class action certification.
  • A highly organized plaintiffs’ bar is using advanced litigation tactics, including reptilian theory, to appeal to juror emotions, resulting in unprecedented liabilities for defendants.
  • The frequency with which punitive awards are accompanying compensatory awards is up 20% since 2014. While many cases are settled on appeal, a punitive award puts significant pressure on a settlement and inflates the value of the case.