There’s little doubt that it’s a time of intense change for the casualty insurance marketplace.
Rapid advances in interconnected technologies and drones, InsurTech disruption, changing workplace dynamics along with industry profit pressures are expected to shape the casualty market in the year ahead.
In their annual look at the state of the casualty insurance market, Marsh’s U.S. Casualty Practice takes a look at the key developments they expect to influence buyer and insurer behavior in 2017. Based on discussions with insurers and their own observations, New York City-based broker Marsh predicts 2017 will continue to bring more new technologies and business models leading to evolving risks.
Here are 10 trends that are likely to affect you and your insurance business in 2017:
As individuals — especially young people — move away from the traditional 9-to-5 workday model, businesses will need to address questions related to which individuals are eligible for workers’ compensation coverage and under what circumstances. (Photo: iStock)
10. Increased employer and workers’ compensation complexities.
Barring a major catastrophic event, the workers’ compensation market is expected to favor buyers from a risk transfer premium and rate perspective. But that will not eliminate or fully offset many of the challenges employers will face in 2017.
In 2017 and beyond, as the “gig” economy expands and technology further develops, we’ll see a continued shift away from the traditional workday and fixed employment locations to part-time, on-demand, and independent contractor arrangements. For an employer, this increases complexities around the implementation of proper safety procedures and the delivery of timely and quality medical care to injured employees.
9. Increased purchases of excess liability limits.
Insureds make buying decisions based on many parameters: Risk quantification, safety and claims handling expertise, likelihood of catastrophic loss, and budgets. These are logical and practical reasons — until there’s an underinsured loss. Hindsight creates second guessers asking why additional coverage wasn’t purchased for a minimal expense.
Increased purchases of excess liability limits are expected in 2017. The present soft excess market provides low-cost access to contingent capital. Sophisticated analytical tools exist to quantify the likelihood of a loss greater than the current excess liability limit purchased.
“Nuclear verdicts” in the automobile liability and product liability arenas are in the headlines. At the same time, the soft market leaves some room in most insurance budgets.
To retain existing accounts and secure new ones, casualty insurers may offer more flexible coverage terms in 2017. (Photo: iStock)
8. More underwriting scrutiny from a coverage perspective.
We’ll see more underwriting scrutiny from a coverage perspective in 2017. Differentiation in program choices will be more about coverage than price as unknowns increase and carrier positions begin to diverge.
These differing approaches will occur as clients have access to more analytical data and information to help them better analyze coverage differences.
Different cyber, punitive damage, and dispute resolution mechanisms will carry more weight in 2017 than ever before.
7. Sensor technology explosion.
Technology advancements, coupled with the ability to digest vast amounts of data and arrive at actionable recommendations, will allow the insurance industry to improve loss ratios, analytics, claims handling and workplace safety.
The key to unlocking these technologies’ potential benefits rests with the translation of data points into actionable information. Investment in wearable devices, other sensors, and dashboard technologies that purport to translate sensor inputs into data will lead to commercial insurance sensor applications improving both property and casualty loss profiles.
A need to expand margins will lead to insurers trying to push for higher casualty rates in 2017. (Photo: iStock)
6. A push for higher casualty rates.
Insurers’ margins are under pressure and shrinking due to competition, new market entrants, and downward rate pressures. A need to expand margins will lead to insurers trying to push for higher casualty rates in 2017.
Those insurers without a drag from legacy liability and that look to grow market share will once again ensure clients enjoy a soft casualty market in 2017. Legacy writers will need to “sweeten the pot” with flexible terms on coverage, collateral, and service delivery to help retain their business.
The driverless electric free shuttle Navly drives through a district of Lyon, central France, as part of an experiment Friday Sept. 9, 2016. The full-electric autonomous vehicle is made by French company Navya. (AP Photo/Laurent Cipriani)
5. Progress in the consolidation of personal and commercial automobile insurance and products liability.
Autonomous vehicles will change historical automobile loss dynamics.
The conversion to autonomous vehicles will not be completed in 2017, but we will see stepping stones in the consolidation of personal and commercial automobile insurance and products liability.
Time will tell what the future underwriting requirements will be for driverless vehicles.
For the foreseeable future, new carrier entrants and expanding insurer appetites will bring the industry’s focus back to growth. (Photo: Shutterstock)
4. Focus back to growth.
Since 2008, insurers generally have increased underwriting discipline. With limited investment income opportunities, insurers have largely focused on underwriting profitability rather than premium growth.
In 2017, however, this strategy may lose ground. The marketplace appears to be getting more aggressive despite indications that underwriting results are deteriorating and inflationary claim trends will not be offset by rate. This could lead to greater-than-expected volatility for various product lines or industry segments.
New entrants and incumbent insurers are competing for market share and growth at a time when insurers are reporting increases in medical costs, automobile damage, and claim settlement values.
In the long run, rising medical costs, an organized and aggressive plaintiff’s bar, and larger verdicts will likely impact more product lines. For the foreseeable future, however, new carrier entrants and expanding insurer appetites will bring the industry’s focus back to growth.
The insurance industry’s sluggish response to the sharing economy has left opportunities for InsurTech disruptors. (Photo: iStock)
3. Ongoing InsurTech disruption.
The insurance industry is converging with the technology sector. Capital is looking for a home in disruptive technologies aimed at the insurance industry’s inefficiencies.
The insurance industry’s sluggish response to the sharing economy has left a major crack through which InsurTech disruptors could gain a foothold. Further expansion into other parts of the value chain could follow.
Slow movement by traditional insurers to become more efficient will attract disruption to different parts of their value chain. Initial niche success will lead to broader expansion for the successful InsurTech companies of the future.
In 2017, insurers will likely continue to create policy language and endorsements that clarify how commercial and personal lines policies address a number of evolving risks. (Photo: iStock)
2. Transfer of risk of the unknown to specialty product lines.
Over the last two years, the Insurance Services Office (ISO) and insurers have created a number of cyber exclusions for commercial general liability (CGL) policies. Largely, these exclusions seek to eliminate some combination of intangible property damage, nonphysical damage, and advertising or personal-related liabilities that were not originally contemplated by CGL policies.
In 2017, insurers will likely continue to create policy language and endorsements that clarify how commercial and personal lines policies address a number of evolving risks, including:
- The sharing economy.
- Self-driving cars.
- 3D printing.
- Genetically modified organisms (GMOs).
Meanwhile, insurers will make individual underwriting decisions based upon better identification of the root causes of claims. Insurers will also seek to clarify coverage intent with regard to traumatic brain injury and other emerging exposures.
Expect to see more unintended consequences from the IoT, leading insurers to look at risk aggregation and possibly change the way they provide coverage for risks associated with connected devices. (Photo: iStock)
1. More unintended consequences from the Internet of Things (IoT).
As interconnected technologies take greater hold and autonomous vehicles, drones, 3D printing, and other new risks emerge, the insurance industry will need to address the blurred lines between specific forms of coverage, including general liability, product liability, cyber insurance, and auto liability.
The level of interconnectedness magnifies the potential frequency and severity of adverse events as the impact of an individual loss can ripple through an entire connected system. This possibility directly contributes to insurer aggregation fears.
In 2017, expect to see more unintended consequences from the IoT, leading insurers to look at risk aggregation and possibly change the way they provide coverage for risks associated with connected devices.