If you're a commercial-lines insurer writing auto or cat-exposedproperty coverage in Indonesia or Germany, you're probably gettingdouble-digit rate increases. Insurers involved in other lines orother countries are likely operating in an environment of ratedecreases to single-digit increases, with a lot of flat in between,according to a Marsh quarterly briefing.

“Overall pricing in global insurance markets in [Q2 2014]declined for the fifth consecutive quarter, as measured by theMarsh Risk Management Global Insurance Index,” Marsh says in itsJuly “Global Insurance Market Quarterly Briefing.” Marsh citesstrong capacity, particularly in property lines, and an absence ofsignificant losses in Q2 as the primary reasons for the pricingdecline.

Marsh says its quarterly pricing index fell below 100 (to 99.5)for the first time since the broker launched the index in 2012.Rates in the U.S. and UK, though, continued to see modestincreases. Marsh's index is comprised of client renewal data onproperty, casualty, and financial and professional lines ofbusiness, weighted by premium placed, taken from 20 large economiesacross all continents.

Property rates are seeing the greatest decreases on average,thanks to competition among both primary carriers andreinsurers.

On the following pages, see a breakdown of rate activity forproperty risks and casualty risks, as well as a focus on the U.S.rate environment and Marsh's take on the emerging and evolvinginsurance market for drones and cyber (all graphs are fromMarsh Global Analytics).

Commercial Property

Competition is everywhere in the global property market. Ratesfor catastrophe-exposed risks are falling in the primary market—aside effect of the competitive landscape in the reinsurance market,where alternative capital has provided even morecapacity.

But even in the primary market, Marsh says existing insurers arelooking to expand market share in the property space, while newcapacity is entering the market. “Rates for property insurance fellin most major global regions,” Marsh says, adding that LatinAmerica-Caribbean and continental Europe seeing the larges declinesat 8%-9%.

In the U.S. new entrants strengthened competition, and Marshsays predictions of a lighter-than-average Atlantic hurricaneseason mean insureds “generally were able to secure favorablepremiums, terms and conditions and limits for their propertyinsurance.”

In Q2, Marsh says, rates in the U.S. were down on average in thehigh-single-digit range.

Casualty

On the surface, the global landscape appears the same in thecasualty market as it is in property: plenty of capacity andcompetition. But Marsh notes that in some areas, the market isstill driven by loss experience.

Marsh cites the power and utility sector as one area wherelosses dictate pricing. “In addition,” says Marsh, “some insurerstried to push for cyber exclusions on programs with largeconcentrations of consumer activity.”

But in general, insurers are competing in the casualty space,and that means favorable pricing for buyers. Marsh says insurers“were loath to walk away from good business, even if it meantaccepting lower rates.”

D&O

Marsh says professional liability claims frequency has remainedlow, fueling capacity, competition and stable rates. “For publiclytraded companies, the market for directors and officers liabilityinsurance generally improved in the second quarter, with abundantcapacity and strong competition,” states the Marsh briefing.

For U.S. private companies, though, the story was different.Rates increased despite healthy competition for business. Marshattributes this to significant claims activity since 2011 forinsurers that provided broad coverage to privatecompanies.

In April, Ann Longmore, then with Willis but now with Marsh'sFINPRO practice, said insurers were looking to “vastly narrow thescope of the cover” for private companies. She explained why the private-company D&O market waschallenging for insurers, stating, “The private-company form isreally very broad. It picks up any claim against a company as thedirectors and officers unless specifically excluded. And so overthe last few years, carriers have ended up paying claims that felloutside their normal expectations—whether they were intellectualproperty, or antitrust, or contract related—the claim payments forthat sector have outpaced, in the minds of many underwriters, thepremium or portfolio of premiums associated with them.”

Focus on the U.S.

As noted earlier, U.S. property rates are decreasing on averageas insurers enjoyed profitability last year, capacity remains highand the industry has avoided a high number of major losses over thelast 18 months.

For casualty, Marsh says average rates continue to increaseslightly, but the level of increase is “generally diminishing, andcompetition in this sector looks to be slowly driving a softeningin pricing.”

By line, Marsh says average rates for general liability and autoliability ranged from flat to 3% increases “for favorable risks” inQ2, indicating a softening. Marsh says fewer clients saw increasesin Q2 and more saw decreases in these lines.

Rising medical-claims costs continue to impact workers' comp,with rates flat to up 5% on average in Q2. “Companies withCalifornia workers' compensation, truck fleets and New Yorkconstruction exposures were under particular scrutiny byunderwriters,” Marsh says.

Marsh says the recent trend in theU.S. of increasing excess and umbrella rates appears to bereversing. “In the absence of a market-changing loss event and withabundant umbrella/excess capacity, the cycle seems to be softening,despite the continued low-interest-rate environment for insurers,”the briefing says. “Challenges do remain in industries deemed to behigh risk, although it appears that rate increases are moderatingin these areas as well.”

As for exposures, Marsh says, “Payroll, total insurable values,revenues and employee numbers all increased modestly in the secondquarter of 2014, with employment showing signs of a possibleacceleration in growth.”

In fact, Marsh says insurers are willing to accept ratedecreases if accompanied by more year-over-year premium related toexposure increases.

Property insurers remain concerned about flood risks, contingenttime element exposures, contingent business interruption withoutdocumentation and storm surge, says Marsh.

Coverage spotlight: Drones and cyber

Marsh says coverage inquiries around unmanned aerial systems(UASs) “increased substantially” in 2014 as companies explorecommercial opportunities. “In the US, this is driven by preparationfor the Federal Aviation Administration (FAA) to open commercialairspace,” notes Marsh.

Insurers are “working on new products to cover hull, generalliability, products liability and property damage risks resultingfrom drone use,” says the briefing, but risks remain largelyunknown with respect to commercial use of drones.

“Nevertheless,” says Marsh, “we expect to see capacity tounderwrite drone policies increase as insurers become more familiarwith the expanding private sector use of the technology.”

Cyber

Marsh says cyber insurance “continues to evolve both in terms oforganizations' exposures and insurers' responses.”

As the market evolves, so does the understanding of risks. Marshsays it worked with “Bermuda markets” to create a fines andpenalties enhancement that “essentially provides drop-down coverageas an excess and difference-in-conditions component of theirstandard cyber capacity.”

Carriers are also understanding risks that follow a cyber event,such as business interruption, and including provisions such as a“system outage/technology failure” trigger, which Marsh saysexpands coverage beyond the cyber-attack peril.

“Several insurers also offer dependent business interruptioncoverage for risks created by outsourcing and the cloud,” saysMarsh.