9 P&C Trends Every CFO Should Monitor in 2019

The P&C insurance landscape has shifted in the past couple years following natural catastrophes, capital market developments, societal events, and the evolution of technology. As we look forward to the new year, changes in the insurance market will impact risk management practices and insurance pricing for middle market organizations in 2019. CFOs should monitor these industry trends because of the impact it could have on their balance sheets if not properly managed. 

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1. INSTITUTIONAL INVESTMENT IN REINSURANCE

 
The prevalence of institutional investment in the reinsurance market has created a stabilizing effect on reinsurance pricing. As a result, many believe the pricing swings of the traditional underwriting cycle are now a thing of the past, and relative stability should be expected going forward, with a few exceptions.
 

2. COMMERCIAL AUTO STILL A SORE SPOT

 
The commercial auto market is an exception to pricing stability as it has been losing money annually since ’11, and there doesn’t seem to be an end in sight. Carrier losses are a function of more vehicles on the road, distracted driving, replacement part inflation, medical cost inflation and runaway jury verdicts totaling $30 million + in some venues. Premium increases should be expected, especially for companies with large fleets and/or large losses. Investing in improved loss control measures may no longer be optional.
 

3. SOCIAL ENGINEERING IS A TOP RISK FOR ANY BUSINESS NOW

According to the FBI, social engineering attacks are up over 2,000% over the past few years and have amounted to over $5 billion in fraud. Thankfully, the cyber marketplace still remains competitive for insureds who can demonstrate the right level of controls. The overlapping of coverage in crime and cyber policies creates a greater need for coordination of coverage from sophisticated brokers.

4. A FIRMING LIABILITY MARKET, INCLUDING UMBRELLA

General liability carriers are seeking moderate rate increases. Pricing on heavy premises and product liability risk is firming even more. The frequency of catastrophic verdicts triggering umbrella/excess carrier payouts from auto and construction losses will be an interesting trend to follow. These jury awards and/or settlements are largely a function of a highly organized plaintiff’s bar relying on advanced litigation strategies, such as the reptile theory. Insureds in lower severity industry classes are now starting to see rate increases as a result.

5. SOFTENING WORKERS’ COMPENSATION MARKET

With a multi-year run in profitability, the workers’ compensation market remains soft. A combination of more efficient medical care and effective return to work programs are lowering the frequency of lost time claims.

6. COMMERCIAL PROPERTY IS STABLE DESPITE THE KNOCKOUT PUNCHES

Despite ‘17 and ‘18 including 5 of the worst storms in US history, the property insurance market is stable due to $700 billion + of capital (supply) available. Carriers are scrutinizing portfolios more closely and seeking higher renewal rates on catastrophe exposed property with losses. Underwriters are limiting coverage in high exposure areas while increasing retentions, which makes broker attention to detail paramount.

7. THE #METOO MOVEMENT ISN’T GOING AWAY

The #MeToo movement has driven employment practices liability carriers to scrutinize sexual harassment training and handling of complaints. Employers realize the critical impact workplace culture has on the likelihood of a claim arising. Fortunately for insureds, we haven’t seen pricing impacted too much by the movement.

 

8. USING ANALYTICS TO ENHANCE CARRIER NEGOTIATIONS

Middle market clients are using advanced analytics services to enhance underwriter negotiations and improve their loss control initiatives. They are including a detailed narrative of their best in class loss control protocols and claim management procedures to pair with an analytics package that improves renewal terms. It is becoming increasingly important to use analytics to validate to carriers existing loss controls are working.

9. GROUP CAPTIVES GAINING MOMENTUM IN THE MIDDLE MARKET

Despite the relatively soft insurance market, group captives continue to gain interest from privately held middle market clients in higher risk industry classes. Demand is especially strong from insureds with significant auto risk who are getting hit with unwarranted increases. Several other factors are contributing to the increased use of group captives, including the allure of economic benefit, greater understanding in the C suite and more advanced risk management resources available to insureds. A healthy reinsurance market is also fueling the momentum.

 

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