Marketplace Realities 2018: Property

November 6, 2017
*This report offers Willis Towers Watson’s first view of the marketplace post hurricanes Harvey, Irma and Maria. At the time of publishing this report, there is still a high degree of uncertainty around property market conditions and pricing for 2018. We will publish a supplement to our property section once we have more visibility into the factors influencing market conditions.
  • The 2017 hurricane season has been one of the most active and financially disruptive in history. With losses to the insurance industry expected to exceed $100 billion, we fully anticipate some type of market correction.
  • Despite the damage, the marketplace has been very stable so far. We do, however, expect a change in the marketplace after insurers have a chance to estimate their ultimate losses. It is safe to say that all property markets will have combined ratios above 100 this year.

The one thing

Know your risk tolerances and coverage needs so you are ready for the possibility of renewal pressures we haven’t seen for years
  • Most 10/1 renewals proceeded smoothly and some even saw rate decreases.
  • Most 11/1 renewals have been quoted and all markets are honoring their quotations so far.
  • But insureds experiencing hurricane losses will see rate increases. These buyers should make every effort to prepare loss estimates for the markets. Many insurers will insist on loss estimates before they can release quotes.
  • Many property underwriters have come out and said that no further rate decreases will be quoted unless approved by their top U.S. managers.
  • Many property coverages will be impacted by the hurricanes.
  • Business interruption calculations – Business interruption value determination is usually the most difficult part of any property claim. The complexity grows when a major cat event affects multiple locations in a wide geographic area.
  • Storm surge (flood vs. named windstorm) – Post Hurricane Katrina, many property policies moved storm surge coverage from the named windstorm section to the flood section. This lowered coverage limits for damage caused by storm surge. Also, flood sublimits are aggregated annually and may need to be reinstated after large losses occur.
  • Price prediction

    Non-cat exposed property
    Flat to +5%

    Cat-exposed property
    +10 to +20%

    Cat-exposed property with losses
    +20% to +25%

    This forecast wil be updated with a supplement to our property page as market conditions come into clearer focus.
  • Quantifying deductible percentages for natcat – This can take some time after a loss but it must be done correctly. Policies base these figures on the SOV on file with the carrier or on a per-unit basis at the time of the loss, and the different methods may yield widely differing results. Underwriters will be pushing to increase dollar caps and to restore percentages to prior levels to the extent they had diminished in recent years. Some underwriters will be requesting appraisals post loss to determine the value base for application of the percentage deductible.
  • Civil & military authority / ingress & egress – These coverages can vary widely, e.g., with regard to distance limitations.
  • Non-physical damage and cyber extensions – Underwriters will be seeking to reduce sublimits, impose annual aggregates or eliminate entirely. They may also push back on recent vintage extensions like evacuation expense.
  • Evacuation expense – This will be triggered for many. Insureds will need to determine if actual damage or imminent threat of damage must occur for this coverage to apply.
  • Contingent time element/business interruption – Some policies will exclude or have a lower CBI sublimit if the loss is due to natural catastrophe in high hazard areas.
  • Service interruption – With widespread power outages, many service interruption claims are likely. Waiting/qualifying periods typically apply before coverage goes into effect and normally service providers need to suffer direct physical damage for the coverage to trigger.
  • Valuation limitations (margin clauses, coinsurance, OLL) – Language limiting the amount you can recover after a loss is added to many policies when the insurers believe the values reported at binding may be inaccurate.
  • Debris removal – Debris removal is a major issue after hurricanes. Coverage may be limited for debris that comes from other uninsured locations.
  • Prognosticating rates at the approach of a hardening market is a tricky business and there is still uncertainty as to where the market will land by year end. Some carriers are indicating worst-case increases of up to 50%. Others are more sounding more moderate. We believe the more moderate voices will prevail. It’s also important to note that several factors could dampen the upward pressure on prices, including still-abundant capacity, a competitive landscape and reports that the ILS investor community is still interested in entering the market, all of which could limit increases over the long term.