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Survey Report

Insurance Marketplace Realities 2021 – Property

Property
N/A

April 21, 2021

A two-tiered market has resulted from the recent rise in availability of capacity.
Rate predictions
  Trend Range
Non-challenged occupancies: Increase (Purple triangle pointing up) +5% to +15%
Challenged occupancies: Increase (Purple triangle pointing up) +20% or more

Key takeaway

A recent rise in the availability of capacity has created a two-tiered market: one for challenged occupancies and one for non-challenged occupancies.

Property pricing is showing signs of easing, but upward rate pressure persists in the near term.

  • Year-on-year increases for several annual cycles have brought perceived rate adequacy to many accounts. As a result, new capital (and redeployment of capital that sat on the sidelines in 2020) is available, helping to ease overall rate pressure for certain risks — to the point of creating competition for adequately priced risks in non-challenged occupancies. A phenomenon rarely seen since 2018. However, capacity remains constrained for challenged occupancies and all occupancies with adverse loss experience.
  • Even with some easing of capacity and some signs of competition, the entire property market, broadly, is still experiencing rate increases, however, and the range of rate increases varies greatly by industry and risk classification.
  • While we expect the magnitude of rate increases to continue to decelerate in 2021, the extreme losses of 2020, the winter storms of 2021 and ongoing COVID litigation are likely to sustain upward rate pressure for some time.

The marketplace continues to be driven by insurers pursuing profitability, not capital depletion.

  • Insurer focus remains on the reduction of volatility — a strategy that not only impacts rate, but raises the likelihood of underwriters adding coverage restrictions and policy exclusions, e.g., for communicable disease, strikes riots and civil commotion and cyber. Cyber exclusions are now standard.
  • We are seeing a continued push for company forms versus manuscripts.
  • Fronting of global programs remains problematic due to enhanced scrutiny of the financial security of reinsurers and inconsistency of policy wordings.
  • Technical underwriting remains a challenge at renewals.
  • Despite dramatic increases in 2020 rate levels, some accounts are perceived to not yet be adequately priced, and insurers are looking to maintain the upward rate pressure.

The 2020 year brought historic disasters.

  • The U.S. suffered 22 separate billion-dollar weather/climate events in 2020.
  • The record Q1 2021 catastrophic losses from severe winter weather in Texas and Louisiana are expected to result in approximately $18 billion in insured losses. The potential for these claims to develop further may have an impact on the rate environment. The Texas/Louisiana cold snap could develop into the largest winter storm event in history.
    • Billion-dollar events are on the rise; 2020 was the sixth consecutive year with 10 or more billion-dollar weather/climate events. The elevated frequency of such events has changed the marketplace, altering the way insurers plan for future insured losses and for modeled and non-modeled risks.
    • The hard market of 2020 forced many clients to take larger retentions, self-insure a portion of their risk as well as reduce overall limits to manage costs. The market is far from a state where a return to previous program structures will make budgetary sense.

Buyers need to take control of their insurance renewal with a commitment to broad data collection and data quality.

  • This increased information will help buyers more accurately model any changes (e.g., reduction in limit or increased retention) and help ensure that risk management strategies reflect organizational risk appetite or corporate philosophy.
  • Analytics provide important guidance as buyers align offerings in the marketplace to their rapidly shifting risk transfer needs.
  • Buyers need to distinguish themselves from their peers, especially those in challenged occupancies. Risk managers are more critical than ever to help tell this story and provide the necessary data to satisfy underwriters’ insistence on robust underwriting information.
  • Underwriter meetings are strongly encouraged; telling a story of mitigation efforts, improved loss control measures and disaster recovery/business interruption plans will be critical in differentiating a buyer’s risk.
  • Underwriting meetings via video conferencing have become the norm. Take advantage of this medium to bring corporate resources (e.g., plant safety professionals) to underwriting meetings to provide depth to the risk management narrative.

Risk managers need to manage stakeholder expectations as rate increases continue; they should consider creative solutions and alternative structures to mitigate the total cost of risk.

  • Property is a not a “one-size-fits-all” market; carriers are discriminating.
  • Accessing the global marketplace (London, Bermuda and Asia) may be crucial, especially for shared and layered deals.
  • Expect underwriters to be inundated with new business opportunities through July.
  • The need to differentiate risk has never been greater.
  • Consider alternative structures, such as parametric programs, to complement a traditional insurance plan. A parametric contract could provide immediate liquidity in the event of a covered loss while the loss adjustment process for the traditional program is worked through.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

Contact

Gary Marchitello
Chairperson of North American Property Practice

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