In its 2017 Insurance Market Outlook, Wells Fargo noted that last year was a buyer's market for both Property & Casualty insurance and affiliated lines, as predicted in its 2016 insurance market outlook report.

The majority of insureds experienced medium to high single-digit to low double-digit rate decreases across a broad coverage range with a few coverage line exceptions. The insureds also benefited from increasing market capacity in the form of new markets competing for business and broader coverage terms and conditions, which helped drive prices down overall.

For the coming year, Wells Fargo expects the majority of insureds will continue to see reductions, just not as high as in prior years. The pace of reductions are slowing and the market is stabilizing somewhat and the degree of positive underwriting gains is decreasing. These factors are expected to result in more underwriting discipline than in past years, and the report notes that some insurers are turning down perceived unprofitable deals.

In particular, buyers of guaranteed-cost or low-deductible programs will experience lower reductions and likely single-digit increases in 2017, compared to buyers of large deductible and retention programs.

2017 trends

According to the report, some of the specific factors and trends will affect the 2017 market include the following:

  • Terrorist events increasingly occurring on U.S. soil.
  • High-profile data breaches and imposter fraud continuing to occur, increasing the focus on cyber crime and reputational risk loss mitigation.
  • Aggregation of cyber claims because a single data privacy event could result in multiple claims reported to the same insurers.
  • The recent workers' compensation ruling in Florida allowing negotiated fee agreements between claimants and attorneys.
  • Continued focus on data analytics as insurers develop more sophisticated and accurate predictive loss patterns and trends.
  • Surplus capital continuing to be used in existing and emerging product lines, although there will be more underwriting discipline.
  • Catastrophe bonds and other forms of alternative capital continuing to attract investors for property-oriented risks and similar products being developed for non-property exposures.
  • Larger guaranteed-cost or low-deductible programs in excess of $1 million in premium becoming more challenging to underwrite.
  • Risk managers increasingly considering terrorism and political violence coverage for international exposures.

Property insurance market

The global property insurance marketplace remains extremely competitive, the report says, from a pricing, terms and conditions, and available capacity perspective. In 2016, as in the past several years before it, there were minimal substantial industry-wide catastrophic losses and plenty of working capacity available. Hurricane Matthew was the exception, for which insured losses are estimated to be in the $6 billion to $9 billion range.

Of particular importance, cyber is becoming more of a concern, even on the property side, and is expected to be a "hot topic" for years to come. In addition, although coverage for terrorism is widely accessible, most properties that are potential targets — think shopping malls, power plants and sports stadiums — and those that are located in very large metropolitan areas, such as New York, Chicago or San Francisco, will find it more difficult to obtain coverage.

The report also notes that carriers continue to fight for market share. Wells Fargo expects this environment to continue into 2017 and the foreseeable future, assuming normal loss activity continues at a similar pace.

For 2017, the report predicts that "Accurate, high-quality underwriting data will improve renewal outcomes, with insurers remaining disciplined as profitability is crucial." Overall, Wells Fargo expects the property market to continue to realize reductions, generally ranging on average from flat to 10 percent.

Liability insurance market

The report notes that there is continued competition for premium dollars, as well as new capital entering the market. However, increased natural disaster losses and a continued decline in treasury yields and other low-risk investment options are putting additional pressure on underwriting discipline. The most aggressive pricing is expected to be for clients with exceptional loss experience and who demonstrate appropriate risk management. Increased use of predictive modeling will also drive a more selective marketplace.

For the Primary Casualty sector, Insureds with higher retentions will see a competitive softening of the market, probably flat to a 10 percent decrease. Those clients with "stellar loss experience" and a willingness to assume greater risk could see bigger decreases.

Regarding Umbrella and Excess Liability, lead umbrellas are still competitive, the report says. Wells Fargo expects increasing capacity and the competition seen in past years to continue during 2017. Wells Fargo also expects 5 percent to 10 percent pricing decreases.

Excess liability rates are expected to vary based on the layer, with rates flat to decreasing 10 percent for mid-limit layers, and rates leveling out at the current pricing for the upper layers.

For more information, see the 2017 Wells Fargo Insurance Market Outlook.

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