Editor's note: This entry originallyappeared on Marsh's website. Steve Kempsey is U.S. casualty practice leaderat Marsh.

Early each year, Marsh’s U.S. Casualty Practice considers thekey trends that it expects to drive the casualty market in thecoming months. Following, Marsh presents its views on how thosetrends could affect risk managers' companies.

1. Average Rate Changes To Be More Stable:Insurers continue to seek rate increases, but abundant capacityhelped to stabilize the market in the second half of 2013. Thistrend should continue in 2014.

Due to previous structure and rate corrections, some of the moredifficult classes of business may also experience ratestabilization toward the year’s end. However, these tougher classes— including guaranteed cost workers’ compensation, risks with highemployee concentrations for workers’ compensation, and those withadverse experience — likely will continue to see larger increasesthan others.

Interest rates are improving — but unless they jump by severalhundred basis points, this will not on its own cause significantmarket softening. Meanwhile, property reinsurers are faced withincreased competition and reduced demand; their redeployment ofcapacity to casualty lines may further temper rate increases.

2. Your Risk Profile Matters: The standarddeviation of rate changes will remain large as risk profiledifferentiation and loss experience drive individual results (withthe best-in-class companies in desirable risk classes able tosecure premium reductions). Underwriters’ continued scrutiny ofrisks — including the involvement of home offices on traditionalunderwriting issues — is lengthening the renewal process. Insurerscontinue to seek more historical loss information and detailedexposure data. The more data that individual insureds can provideto demonstrate favorable long-term trends, the more aggressivelythese insurers will be able to quote.

3. The Incumbent Advantage: After marketingtheir programs over the last several renewal cycles, many insuredsare likely to look to establish continuity with their incumbentinsurers and overall marketing activity is likely to decline.Programs will continue to be marketed, however, when incumbents arenot willing to provide both a client-friendly approach to theexpiration of the Terrorism Risk Insurance Program ReauthorizationAct (TRIPRA) and coverage guidance. Meanwhile, lead umbrellaunderwriters will continue to scrutinize attachment points andlimits, increasing buffer layer marketing efforts for tougherclasses. Collateral can still provide an advantage for incumbents,but to a lesser degree as the marketplace relaxes requirements forfinancially strong insureds.

4. The Field Continues to Grow: New capacitycontinues to enter the US casualty marketplace, including some fromAsian and European markets. As policyholder surplus increases torecord levels, existing insurers will continue to reevaluate theirappetite in order to drive premium growth. Unfortunately, for tougher riskclasses and for excess workers’ compensation, we do not foresee aninflow of hungry capacity.

5. A Bird in the Hand: After losing somebusiness over the last few years that they had wished to retain,many insurers will be eager to avoid further marketing in 2014 andwill likely be more flexible on rates and other terms. Followingrate increases over the last few years, there is less of a gapbetween insurers underwriting on a “technical” basis — driven bylosses and other market fundamentals — and those in the “trading”market that are seeking to gain market share. Rather than simplywalking away, many incumbents may take more aggressive positions toretain their accounts — especially if faced with competition. Newentrants, meanwhile, will continue to be aggressive on both priceand collateral in order to build their books of business, whichwill drive the trading market.

6. Portfolio Risk Management: Analysis ofaggregate exposures across coverage lines will continue to driveinsurers to modify their appetite for some risks, and to redeploycapacity. The growth in exposures and continued rate lift willincrease overall premiums written in workers’ compensation andother lines, typically giving insurers greater flexibility toachieve their underwriting objectives. Limit management likely willcontinue, and average limits deployed likely will shrink. Insurerswill be able to translate and act on portfolio decisions andpositions for individual risks, and will often provide insureds with clearerindications and more lead time to prepare for pricing and/orcapacity changes.

7. Changes Afoot: The economic recovery willdrive insurers’ strategies. With surplus at an all-time high andthe economic outlook improved, consolidation in the marketplace islikely in 2014 which will result in changes to carrierappetites.

In 2012 and 2013, some noteworthy underwriting talent moved tonew insurers. These underwriters are expected to take aggressivepositions on risks that are “new” to them, which in turn willpressure incumbent markets.

8. The Coverage Matters: Consistency andclarity of coverage will have more of an impact on how individualinsureds select their insurers in 2014. Multiyear deals andalternative risk financing methods likely will gain popularity thisyear. Coverage clarification efforts will be most crucial regardingpotential TRIPRA non-renewal language, product recall coverage,professional versus general liability triggers, and gray areasbetween general liability and cyber insurance.

9. Data-Driven Decisions: The use of data willfurther influence the decisions of risk managers and insurers onprimary and excess casualty. The development of advanced losscontrol analytic tools will revitalize insureds’ focus on claimreduction, and potentially lead to increased investments in losscontrol. Meanwhile, insurers are relying more on data to makeimportant portfolio decisions, including exiting some businessesbecause of modeling results. Insurers are also placing even greateremphasis on state-specific workers’ compensation trends,general liability jurisdictionalanomalies, and the severity of recent auto liability verdicts.Predictive modeling pricing parameters will have greater influenceon individual risks.

10. Innovation by Necessity: Insurers andbrokers will continue to innovate in order to remain relevant andcompetitive. Legislative changes, unfavorable court rulings, andgreater complexity of risk drive the development of new products,services, and analytical tools. Industry-specific offerings willbroaden and as a result buying philosophies will evolve. In healthcare, for example, provider stop-loss usage will increase to combatcapitation risk post-health-care reform. Globalization will lead tofurther alignment of international exposures and coverages withcore casualty programs. Meanwhile, although most marketparticipants expect that TRIPRA will be reauthorized — with morerisk being borne by insurers — novel strategies will likely emergein 2014 to combat the “worst-case scenario” of non-renewal.