Less ‘Peril’ous, in Rate Terms

Perspectives on just how soft the Commercial Multi-Peril market is vary among market executives. Depending on its loss experience, a client in California could negotiate a 5%-10% rate decrease, according to San Diego-based Steve Shea, a principal with Barney & Barney LLC, a Marsh unit that places coverage in the Golden State. A year ago, that same account likely renewed at a rate that was flat to 2% or 3% higher, he says.

But while brokerage executive Jim Schmidt of Mesirow Financial also characterizes rates as competitive, he says he's not seeing large rate cuts even for the best risks. Schmidt, a Chicago-based sales director in the Insurance Services Division at Mesirow, says rates "are not ticking up more than 2% or 3%."

Some accounts, however, fall outside those parameters. Depending on an account's loss experience, insurers may be very aggressive in pursuing new business, notes Benedikt Sander, senior vice president and manager of Commercial Automobile and Commercial Multi-Peril lines for Liberty Mutual.

Conversely, high-hazard industries could face double-digit rate increases, says Schmidt. Preparing detailed submission, with involvement from underwriters, is critical in keeping any rate hikes at levels that accurately reflects the risk, he adds.

Broader coverage

Commercial Multi-Peril insurance buyers also can expect to find broader coverage options. Buyers are less likely to accept limitations in coverage, Shea observes. A couple of years ago, insurers had the flexibility to exclude some portion of a buyer's risk that wasn't appealing to the underwriter. Unless one particular item is extraordinary, he notes, "Today, the underwriter is accepting everything if [the insurer] likes most of the risk."

For additional premium, several Commercial Multi-peril insurers have begun offering some Cyber Liability cover that would respond if a client's computer system is compromised and customers' personal information is put at risk. The coverage often is narrower than in comprehensive standalone Cyber polices, Shea says, but for some clients, these protections can prove a good fit.

While these Cyber options often provide no first-party coverage for lost data or damaged equipment, they typically cover the cost of notifying customers that their private information has been compromised and offer those customers credit-monitoring services. The available limits, typically around $50,000, are not huge, "but they're a good starting point for a lot of policyholders," adds Shea.

In November, Liberty Mutual made four wide-ranging Cyber insurance options available in its Commercial Multi-Peril package. Those separate options cover:

• Data compromise response expenses, including the cost of customer notifications, named malware, forensic IT review, legal review, crisis management, and regulatory and payment card industry fines and/or penalties

• Data compromise defense and liability costs, including the cost of defending and the liability arising from lawsuits filed by consumers and regulatory agencies, as well as the cost of participating in related governmental proceedings

• Attack and extortion, including the cost of data restoration, system restoration, data re-creation, business income loss and cyber extortion

• Network security liability, including the cost of defending and the liability arising from lawsuits over breaches of business data and the unintended forwarding of malicious code.

Available limits for each option range from $50,000 to $1 million per claim, with no aggregate limit. Deductibles vary from $2,500 to $10,000, depending on the limit.

Commercial Multi-Peril insurers are competing for business because of the abundance of capacity they have available, as well as their relatively good claim experience.

Even though very few new insurers have entered the market recently, capacity is "up probably at an all-time high, which bodes well for buyers," Shea says.

"There's plenty of capacity," Schmidt agrees. "In certain regions, capacity may be more expensive, but there is plenty for Tier 1 wind perils and flood risks."

Sander concurs, with a caveat: Accounts with catastrophe-exposed property likely will have to assume higher deductibles for that property, he says.

Meanwhile, the market's claim experience has been stable, and insurance buyers' loss prevention efforts are only improving, market executives agree. For example, Schmidt says he is beginning to see smaller risks install or examine advanced sprinkler systems, and use infrared testing to identify hot spots and potential fire hazards in machinery electrical panels and inside walls.

Massey acknowledges that improved economic conditions suggest a potential increase in claim frequency as businesses experience greater customer "foot traffic." But he expects Zurich's loss experience to remain stable. "We will sit down with clients, particularly those susceptible to an increase, to help them put controls into place." Those controls would be in the form of both additional risk engineering and policy alterations that could require insurance buyers to retain more risk.