Remarkable unanimity reigns among the dozen carrier and broker executives offering their assessment of current conditions in the commercial-lines market.

Prices are clearly upward bound, with Workers' Comp leading the way, followed by Commercial Property (especially in cat-prone areas). But new business is still being priced at lower rates than renewals.

Where are the opportunities in a highly mature U.S. market with a slowly recovering economy? Cyber is universally seen as an area of expanding exposures, with Environmental, Green Energy and Agriculture coverages also expected to help grow premiums.

And underwriters, thanks to ever-more-powerful data systems, certainly feel they are becoming more adept at differentiating among risk profiles, with this insight reflected in noticeably varying rates, deductibles, and terms and conditions among clients with exposures that share surface similarities (see Digital Extra).

What is keeping people up at night? The “new normal” in extreme weather, fracking, opioid prescriptions and low interest rates top the list.

Jack Roche | President, Business Insurance at The Hanover

The commercial lines market continues to be a very dynamic one—with pricing and underwriting discipline improving for specific product lines, classes of business, and geographic markets. There is quite a variance in carrier behaviors based on their respective geographic concentrations and profitability, and agents (even the best ones) are working harder than ever to address some of the pricing volatility and lack of predictable outcomes emerging from the “more sophisticated” pricing models.

Given the slow and sporadic pace of the economic recovery and the continued difficult weather patterns, we do not see market conditions changing dramatically any time soon. The uncertainty of future loss trends and weak investment returns will be a challenge for many over the foreseeable future.

Agents and carriers who have a value-driven strategy, along with the commitment and ability to differentiate themselves and sell value, are achieving significantly greater growth than those who do not.

We continue to see tremendous growth in our small commercial (less than $50,000) business as well as solid growth of our middle market industry specific portfolio, and in our specialty businesses, such as marine and management liability.

Overall portfolio management of risk is increasingly important. Those who focus solely on individual risks can find themselves impacted by larger loss trends.

Many of “black box” models, which are built based upon historic loss patterns, are not functioning rationally given the dynamic nature of the current market. This creates additional uncertainty with agents and customers, causing new shopping behaviors and ultimately puts significant strain on agency economics as account execs and CSRs try to respond to the new level of pricing volatility.

In response, we see winning agents being much more selective about the carriers with which they partner.

Karen Mildenhall | Regional Managing Director, Aon Risk Solutions

We are seeing rate increases in P&C commercial pricing to different degrees, across most product lines. The broker effectively knowing the client's risk profile and communicating this to the underwriter will help keep rate increases to a minimum. Workers' Compensation and Property Catastrophe exposures are seeing the most rate-firming. Capacity and coverage options remain strong.

Network Security/Cyber Liability is a growing risk. The increase in the number of cyber users, the increased amount of data being transferred, the emergence of new technologies, formal SEC disclosure guidance, the cloud and consistent media coverage have all only heightened attention from hackers and cybercriminals.

Just-in-time supply systems are more vulnerable than ever due to the expanding nature of business. At some point, an organization will have a supplier that has an unexpected disruption from contamination, natural disaster or other significant incident that shuts off supplies critical to that organization.

It will also be interesting to see the impact, if any, that the Accountable Care Act (ACA) has on Workers' Comp losses. Organizations without strong benefits programs in place have a tendency to see cost shifting to Workers' Comp. With the ACA mandates holding, employers with longer waiting periods or minimal coverage may see a shift in Workers' Comp soft-tissue injuries.

Various market pressures will continue to result in overall market-firming. Given the state of the financial markets overall and less reserve redundancy, underwriters are looking to underwrite to [under] 100 combined loss ratios. When financial markets give better investment yields, investment income and reserves tend to shore up the confidence underwriters have in offering more aggressive pricing.

Tracy Ryan | Chief Product Officer, Liberty Mutual

Currently, the commercial-lines market is firming, particularly for the Workers' Compensation and Commercial Property lines. Other lines are seeing positive but slower rate increases.

The market's overall firming is driven by a number of factors: underwriting losses from catastrophe claims in 2011; an active storm season in the first quarter of 2012; and a historically low interest-rate environment—all of which significantly impact insurers' investment returns and overall profitability.

The economic recovery has been modest at best, and in some industry sectors, it has been virtually nonexistent. But one growing area is the Residual market, which expanded in 2011 for the first time since 2004. Growth has continued in 2012, with premiums estimated to be up close to 50 percent over 2011.

The increase in the number and frequency of severe tornadoes and hailstorms across the country in the last year—outside the area typically thought to be “Tornado Alley”—has focused the industry on better understanding its exposure and ensuring that we have the right risk management and pricing in place for these events.

The other emerging risk is legislative. The Terrorism Risk Insurance Act is slated for expiration in December of 2014. This is certainly a big issue for the insurance industry, and something we will be watching closely.

Daniel Gaynor | Vice President, Commercial Lines, Main Street America Group

I would characterize the current market condition as an “underwriting marketplace,” meaning underwriters are looking at risks closely and underwriting them based on line of coverage, experience and how their book of business has performed.

The segments where we are experiencing the greatest growth this year include office and service-market segments. Our Main Line Business Owners Policy (BOP) is also enabling us to round out our commercial-lines book with artisan contractors. We also recently launched a tiered Commercial Auto product that is being rolled out to all of our states.

Automation is playing a key role in driving profitable growth. For example, our independent-agent distribution force uses our Main Street Station commercial-lines processing system for quoting, binding and issuing policies right at their desktops. An easy-to-use policy-processing system is table stakes in today's market.

Another trend we are experiencing is bundling products. We bundle our Main Line BOP with Employment Practices Liability insurance, Employee Benefits and ID-theft coverage. The more sophisticated buyer of insurance is looking for these types of packages. The true winners in the marketplace are going to be those carriers that can respond to the needs of their insureds.

Emerging [coverage opportunities] in the market include Health Care, Energy and Green Technology. The insurance industry needs to react more quickly to the environment and keep up with changes, especially in the area of technology.

Extreme weather events are high on the emerging risks scale for carriers. In more recent years, we are seeing extreme weather events across the United States and around the world. Insurers need to assess if this is the “new norm” or if it is just cyclical.

We are clearly experiencing firming in our renewal pricing, but we don't expect to see a hard market in the foreseeable future.

Michael Klein | President of Middle Market, Travelers

The combination of low interest rates and extreme-weather events continues to put pressure on margins. In terms of growth, it's no secret that the economic recovery in the U.S. has been slow and inconsistent. This translates directly to slow and uneven growth in the industries and exposures we insure.

Due to the economic backdrop, controlling costs is a critical concern for our insureds. We are seeing an increased demand for our industry-focused claim- and risk-control services as [clients] seek to better manage their total cost of risk.

Property losses from catastrophe events have been, and continue to be, a significant concern across the industry. As a result, we've seen an increased focus on proper insurance to value (ITV) to ensure that property owners have sufficient coverage in the event of a loss.

In commercial lines, we continue to achieve improved pricing and feel good about the retention levels we're achieving. We believe that we differentiate ourselves from many in the marketplace by not taking a one-size-fits-all approach to pricing.

Randy Schreitmueller | VP/Manager, Global Services & Market Relationships, FM Global

Generally speaking, the global market is firming. In the U.S., rates are heading north. Yet there is still plenty of capital in play, so there's no major sea change until something changes that balance.

On average, the U.S. market is supporting low- to mid-single-digit increases in rates, but that is very much driven on an account-by-account basis. Accounts with poor risk quality, adverse loss experience and significant catastrophe exposures could be seeing significantly higher rate increases.

As the global economy continues to develop, much of the growth is occurring outside North America. For example, multinationals comprise a 75-percent-and-growing share of FM Global clients. Interestingly, the globalization trend is no longer the exclusive province of large multinationals. It seems to be trickling down to include midsize businesses.

With more growth outside North America, many multinationals are increasingly interested in insurers' network scope and responsiveness, as well as their ability to provide consistent capacity, coverage and services (e.g. engineering and claims) while maintaining compliance and on-the-ground expertise.

There are four increasing risks we're seeing. Those risks stem from growing supply chains; company acquisitions and the need to protect newly acquired key facilities in new markets; variability of codes and standards from country to country; and the re-emergence of protectionist regulation.

Elizabeth Dinnin | President, Commercial Lines, Grange Insurance

While the market has been in a state of flux the last several quarters, the key word this year is “firming,” which will help maintain profitability. In catastrophe-prone areas, we are seeing double-digit property-rate increases on a consistent basis. General Liability and Commercial Auto pricing is up over previous years as well. Workers' Compensation prices are clearly on the rise and vary by geography, class of business, loss experience and exposure.

Despite these rate increases, however, we haven't entered hard-market territory.

Stronger renewal pricing is contributing to growth and appears to be firming, with the Property and Workers' Compensation lines seeing the most significant adjustments. Property-intensive risks are being closely scrutinized as the industry-profit results for commercial continue to be under pressure. In addition, carriers are taking a more aggressive stance on property deductibles, rate levels, eligibility, underwriting, acceptability, and overall terms and conditions as risk is managed more closely.

New business is still actively being pursued by commercial carriers, and while a bit more hit-or-miss, there seems to be ample capacity for clean, above-average risks. While not atypical in a transitioning market, there appears to be a fairly sizable gap between new and renewal pricing. As the market continues to firm, we would expect that gap to narrow.

Fracking continues to be an issue as there is concern about whether or not this process triggers earthquakes. In addition, other likely types of [fracking] exposures are Pollution, General Liability, and Workers' Compensation, as well as Extra Expense and damage to service equipment.

Gary Thompson | Executive VP, Middle Market Commercial, The Hartford

Low investment yields, medical-cost inflation, severity trends and the impact of large catastrophic losses on combined ratios are causing continued upward pressure on [rates]. The pricing trends that moved from negative to positive in late 2011 continue. In general, carriers are taking pricing and underwriting actions on multiple lines, with the heaviest focus on Workers' Compensation, where combined ratios are showing the most strain.

Capacity for Commercial Property remains available for best-in-class businesses. Businesses in tornado-exposed areas are seeing stronger Property pricing increases and deductible terms.

For national accounts, I would characterize the market as firm rather than hard, with clients seeing mid- to high-single-digit increases to offset loss-cost and interest-rate pressures. For these larger accounts, the primary growth area right now is in bundled programs. The unbundled marketplace is still very competitive, with a lot of capacity with both established carriers and newer entrants.

While there are a number of emerging risks, one of the most immediate is Social Media Liability, fueled by the increased use of social media by businesses of all sizes. This has given rise to various potential exposures, including personal injury (libel, slander and defamation), as well as intellectual-property rights, given the ease with which information can be obtained, copied and disseminated.

Kevin Brogan | Managing Director and National Practice Leader, Wells Fargo Insurance Services Inc.

Workers' Compensation is a challenging line of business for the industry, and we are seeing those challenges reflected in the marketplace. Carriers are watching the Workers' Compensation line closely as most carriers are looking for price increases, changes in structure or (on a limited basis) nonrenewals. Depending on the state mix and program, some pricing increases are larger than others.

We have seen two areas of growth this year in the commercial marketplace, both coinciding with our economy: Owner-Controlled Programs and Environmental Programs have taken off. When we look at past years versus our results in 2012 we have seen many more opportunities and successes, partly due to the economy and partly due to our increased focus on these product lines.

We are seeing an increase in discussions surrounding network and privacy risk. It's not a matter of if, but when a company will be faced with a breach event, regardless of size or industry class. We spend a significant amount of time consulting with our clients on best practices and, ultimately, how to transfer risk in the event a breach occurs.

Liability and Property Lines are seeing flat to slightly increased renewals based on their exposures and losses.

Martha Oakes | National Middle Market Leader, Westfield Insurance

We view the commercial-lines market as relatively stable right now. Customers with good experience are focused on their business, less interested in shopping their insurance, and inclined to stay with their current carrier and agent.

Unfortunately, many companies that were most impacted by the financial crisis in 2008-2010 are no longer in business. On a positive note, those that have survived are mostly stable and starting to see some signs of improvement.

Overall, exposure growth is still only moderate, but the segments seeing the most growth are Agriculture, Health, Technology and some Manufacturing.

So far, we have seen firming in pricing, especially in the Workers' Comp and Property lines. Property is firming more quickly in areas that have been impacted by storms the last two years.

Mike Halvey | Head of Middle Market Commercial, Zurich North America

While industry results in 2012 will likely mark the third consecutive year of plus-100 combined ratios, we are clearly seeing a more favorable pricing environment and increased demand for some commercial products. There also is an increasing understanding of potential Cyber risks that come from data transfer/storage, social media, etc., driving increased demand for this product.

Despite adequate capacity, the industry is clearly achieving positive rate.

Key drivers include significant deterioration in investment results—historically responsible for some 90 percent of insurer profits—and the cumulative impact of negative rate over the past many years.

Workers' Compensation is a particularly challenged line and consequently is leading the rate gain. We are also seeing many in the industry achieve rate in excess of the loss trend, yielding a net-positive result.

Douglas R. Pearson | Vice President, Commercial Product and Pricing, Nationwide

The commercial-lines market is dynamic in that there is a wide range of underwriting actions impacting the current market. Carriers are culling their books and ridding themselves of underperforming segments of business.

With the continued refinement of pricing, risk segmentation and risk modeling, the commercial market is firming in a more segmented fashion than previous market cycles. Various lines of business are firming at a faster rate than others.

Those carriers that have a robust value proposition rooted in sound risk selection, expertise, customization and good relationships with their distribution partners will continue to see profitable growth. As rates firm, customers are evaluating the value and expertise that are delivered, creating opportunities for wellpositioned carriers.

Relative to customer protection, the risk of data breach is becoming a raised awareness among insureds; [as a result] there has been a lot of activity in Cyber Liability.

Pricing is up in total. Workers' Compensation and Commercial Property rates are trending up. Some other segments, such as Construction risks, are under pressure as well. Pricing increases are very selective based upon individual risk characteristics. With the onset of predictive modeling, accounts with unfavorable risk characteristics are seeing steeper price increases and an increase in underwriting activity than average or above-average risks.

Dan McGinnis | Division Executive, U.S. and Canada, Small to Midsize Enterprises, Chartis

The commercial-lines market is moving in the right direction from the perspective of discipline—both pricing discipline and risk-selection discipline. But the market still needs to demonstrate more consistency in this regard. Real growth, at least in a mature market like North America, will be found in new products that cover new risks.

Although not quite new anymore, a recognizable example of the new product/new risk nexus is Cyber exposure. Customers are learning in real time about their Cyber exposures and through that process are arriving at an insurance value for those exposures. The commercial-lines market needs to partner with these customers to understand this value proposition. Through this partnership will emerge a robust new market.

Special Reports /

'Firming' the Consensus Word Among Commercial Lines Executives

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