Cyber Risk, Political Risk and Sense of
Changing Climate Create New Risk Profiles for
Organizations
Broker Updates 2015 Marketplace Forecast
for North American Insurance Buyers
Willis Group Holdings plc (NYSE:WSH), the global risk advisor
insurance and reinsurance broker, expects Property/Casualty
insurance buyers to experience largely buyer-friendly market
conditions on most lines of business for the remainder of 2015, due
in part to light catastrophe losses and a robust supply of capital
from traditional and non-traditional sources. However, evolving
threats generated from a range of risks – cyber attacks, political
instability in many parts of the globe and the sense of a changing
climate – pose risk management challenges for many organizations.
These are key findings in Willis's 2015 Marketplace Realities
Spring Update. The report, published today, serves as a guide for
North American insurance buyers preparing for upcoming insurance
program renewals and coincides with the Risk & Insurance
Management Society's Annual Conference in New Orleans April
26-29.
Willis expects commercial Property rates to fall by an average
of 12.5 – 15% for both non-catastrophe-exposed and
catastrophe-exposed risks, due in part to a market flush with
capacity, according to the report. Willis experts are watching the
downward trend closely as further softening could occur. Insurance
carrier appetite for this risk remains strong and with increased
carrier capacity, buyers are enjoying ample options in determining
where to place their business in 2015.
For commercial Casualty lines, capacity also remains abundant
and Willis expects primary Casualty pricing at renewals to be flat.
The pricing environment for Workers' Compensation is unchanged,
with a mix of increases and decreases ranging between -5% and +5%,
though California Workers' Compensation rates are expected to climb
by 8%, which is still low by recent historical standards.
For Employee Benefits programs, Willis predicts rate increases
of 5–6% for organizations with self-insured plans, and 8.5–9.5% for
insured plans. Employers remain focused on elements of the health
care reform law that will go into effect in the next few years,
particularly the Cadillac Tax, effective in 2018. The Cadillac Tax
is expected to impact a significantly larger number of employers
than originally anticipated due to the increasing cost of health
care.
The most surprising market softening can be seen in Aviation
programs, where significant and high-profile catastrophes continue
to seize the world's attention. There is still ample capacity in
the marketplace and excluding these exceptional losses, the
industry's safety experience remains good. These factors have
combined to reverse Willis' earlier predictions of sharply
increased rates for this sector. Insurance buyers can expect
renewals to range between flat and +10% for the remainder of
2015.
Willis notes some exceptions to the broad downward trend and
highlights several challenges in the marketplace, particularly for
Cyber insurance. With cyber breaches becoming alarmingly common and
increasingly severe, the demand for stand-alone Cyber policies is
dramatically rising. Willis predicts increases of up to 10% for
most buyers. However, organizations with point-of-sale (POS)
exposures face 10% to 100%+ increases for primary premiums.
Additional increases are likely in the excess layers of the
program, due to paid claim activity. Underwriters are evaluating
retailers and other organizations with POS systems with increased
scrutiny. Adding to the upward pressure, some carriers in this
space have increased their retentions, reduced their capacity or,
in some cases, exited certain sectors.
Willis also expects rate increases on errors and omissions
coverage for organizations with poor loss experience or difficult
industry sectors currently at risk for large claims and litigation,
such as technology firms. Some Environmental insurance programs,
particularly combined Environmental plus Casualty programs, are
experiencing sharp increases as Environmental claims against
organizations continue to trend upward.
In the Executive Risks lines, buyers will find a mix of modest
increases and decreases.
SEEKING PERSPECTIVE
In introductory comments, Matt Keeping, Chief Broking Officer,
Willis North America said, "Individual experiences will vary
depending on industry, geography and loss history, but overall we
anticipate a marketplace that continues to offer opportunities for
buyers. With weather and other catastrophic losses remaining below
average for another year, and capital hungry for a somewhat
predictable return, we see the forces of supply and demand working
as expected."
But challenges remain for organizations as risk profiles change,
Keeping noted. "The threat of cyber-related losses seem to be a
matter of not if, but when; the push for global markets is clashing
with the realities of political upheaval and war in many places on
the planet, making political risks increasingly unavoidable; and
even if Nat Cat losses are down in the aggregate, there is the
sense that a changing climate brings an increased potential for
widespread catastrophe in heavily populated areas."
"Organizations will need to balance the pressure to keep costs
down and the need to maximize resilience for the risk transfer
spend – in other words, to make sure that the organization is
sufficiently protected so that its greater goals can be met,"
Keeping said.
Key Price Predictions for
2015: |
|
|
Property |
Non-CAT Risks: |
-12.5% to -15% |
CAT-Exposed Risks: |
-12.5% to -15% |
|
|
Casualty |
General Liability: |
Flat |
Umbrella/Excess: |
-10% to flat |
Workers' Comp: |
-2.5% to +2.5%; up to +8% in CA |
Auto: |
-10% to flat |
|
|
Executive
Risks |
Directors & Officers: |
-5% to +5% |
Errors & Omissions: |
Flat to -5% or more for programs with good
loss experience; +5 to +20% for programs with poor loss
experience |
Employment Practices Liability: |
-3% to +3% |
Fiduciary: |
Flat to +5% |
|
|
Cyber |
Flat to +5%; +10 to
125% for POS retailers; more competitive for first-time buyers |
|
|
|
Aviation |
Airlines: |
Flat to +10% |
Aerospace: |
-10% to flat |
|
|
Benefits |
Self-Insured plans: |
+5% to +6% |
Insured plans: |
+8.5% to +9.5% |
The Marketplace Realities series, which is published in the fall
and updated every spring, features market snapshots of Property,
Casualty, Workers' Compensation, Employee Benefits and all
Executive Risks insurance lines, as well as key specialty lines:
Aerospace, Cyber Risks, Construction, Energy (upstream and
downstream), Environmental, Health Care Professional, Kidnap &
Ransom, Marine, Political Risk, Surety, Terrorism and Trade
Credit.
The publication is available free of charge on the Publications
page of the Willis website,
http://www.willis.com/What_We_Think/Publications/. To view a
video interview with Matt Keeping, click here.
About Willis
Willis Group Holdings plc is a leading global risk advisor,
insurance and reinsurance broker. With roots dating to 1828, Willis
operates today on every continent with more than 18,000 employees
in over 400 offices. Willis offers its clients superior expertise,
teamwork, innovation and market-leading products and professional
services in risk management and transfer. Our experts rank among
the world's leading authorities on analytics, modelling and
mitigation strategies at the intersection of global commerce and
extreme events. Find more information at our Website,
www.Willis.com, our leadership journal, Resilience, or our
up-to-the-minute blog on breaking news, WilllisWire. Across
geographies, industries and specialisms, Willis provides its local
and multinational clients with resilience for a risky world.
CONTACT: Media:
Colleen McCarthy
+1 212 915-8307
colleen.mccarthy@willis.com
Investors:
Peter Poillon
+1 212-915-8084
peter.poillon@willis.com