Buyers of North America commercial insurance should see an extended hardening market as well as added pressure on coverage terms and conditions for the rest of 2020 and into 2021, Willis Towers Watson said in a new report.

Twin pressures are behind the trend: the ongoing coronavirus pandemic and economic downturn that followed.

“The pandemic and economic downturn will very likely extend the hard market through 2021, with market discipline continuing as insurers’ losses materialize and their investment income deteriorates,” Joe Peiser, global head of Broking, Willis Towers Watson, said in prepared remarks. “While we expect pressure on coverage to last for the foreseeable future, mainly due to significant policy language disparities brought into focus by the inconsistent language addressing pandemics, the good news is the insurance industry is solvent, well capitalized and positioned to deliver.”

Double-digit rate hikes are likely for many lines. Among the more severe: Willis Towers Watson sees rate increases for directors and officers liability insurance reaching as high as 50 percent or more in some cases. The market was already hardening before COVID-19, but Willis Towers Watson said the pandemic has made things even worse.

“Underwriters are laser-focused on liquidity, industry and disclosures specific to COVID-19,” Willis Towers Watson said in its report regarding D&O cover. “Renewals are challenging with the environment heightened by underwriting scrutiny of D&O exposures, all in addition to the continuing firming of primary and excess rates.”

Other lines that could see drastic rate hikes: casualty umbrella (high hazard), which could see rate hikes of 40 percent or more; casualty excess (high hazards), whose rates will climb in excess of 150 percent, according to the report’s prediction.

One exception is workers compensation. Willis Towers Watson said that rates remain stable, but legislation that might address COVID-19 as an “occupational disease” could affect trends in this line. For now, the prediction is that workers comp rates over the coming months should range between negative 2 percent and positive 2 percent higher.

Peiser said that because pandemic risk is so unique, public and private stakeholders should work together to figure out how to manage and back a risk of that scale, such as the Terrorism Risk Insurance Act after 9/11 and the National Flood Insurance Program.

Here are some additional commercial rate hike predictions from the report:

• Property—Non cat-exposed risks could see rates climb 10-20 percent, with cat-exposed risks requiring 15-25 percent rate hikes or higher. Cat-exposed risks with losses could produce rate hikes of 30 percent or more.
• Casualty—Auto rate hikes could climb 6-12 percent, with general liability rates jumping 2.5-7.5 percent.
• Cyber—Rates could climb 10-15 percent.
• Political Risks—They will range from flat to 10 percent increases, Willis Towers Watson said.

Willis Towers Watson’s full report is “Insurance Marketplace Realities 2020 Spring Update.”

Source: Willis Towers Watson