The sharing economy, expanded litigation, surplus capital, custom account underwriting and further consolidation are likely to challenge the U.S. casualty insurance marketplace in 2016, according to broker Marsh.
Marsh expects that the new year will also see wider use of new technologies from wearable devices to social media to drones, which will change the risk profile for businesses and how insurance claims are managed.
Here is Marsh’s list of the top 10 trends driving U.S. casualty markets in 2016:
Continued downward trends for overall rates. Right now, most insurers say that existing rates barely cover losses once inflation and claim development is factored in, according to Marsh’s reports. There’s also this: major competition due to capital surplus, which will likely continue pressuring insurer results.
At the same time, Marsh said, there could be at least partial relief because the economic turnaround in recent years has increased exposures, a trend that at least helps make the effect of rate increases a lesser deal, while generating increased audit premiums at the same time.
Marsh predicts the dynamic will continue in 2016 on competitive lines of coverage including workers compensation, general liability and umbrella/excess liability.
Auto liability bucks the trend. Higher pricing and reduced capacity will likely hit commercial automobile liability over the next year, bucking the pricing trend in the rest of the casualty insurance market, Marsh predicts its annual top 10 list of trends for the sector.
Marsh noted that many insurers have seen their combined ratios deteriorate as commercial automobile loss frequency and severity has increased.
As a result, Marsh predicts that brokers and insureds will need to look at alternative markets and structures.
What’s more, insureds will also need to focus on loss control techniques, including driver safety training, fleet maintenance and the use of telematics through vehicle monitoring devices.
Mergers and synergies. Marsh said it expects insurers in 2016 to generally follow the lead of ACE/Chubb and XL/Catlin as far as seeking global synergies. With this in mind, larger carriers will pursue acquisition of specialty carriers so they can add more niche areas to their products and services.
Marsh also expects some carriers to shut down unprofitable lines and consolidate offices in a bid to trim expenses and retrench. They’ll also look for ways to diversify how they deploy their capital.
Acquisitions will also go global. Marsh said that carriers in Asia and Europe will continue to pursue acquisitions outside of their home region, in the U.S., in a bid to diversify.
Custom underwriting. Marsh said insurers will need to underwrite on an account business instead of using a portfolio approach so they can target profitable business and identify acceptable rates for renewals.
To do this, the market will see a few trends, Marsh said, including a bigger correlation between risk and renewal terms and a need for more participating of key client personnel in underwriting meetings. Also, expect to see more “industry-specific appetites and product offerings,” and a greater reliance on data and predictive modeling to drive underwriting decisions.
Underwriting across multiple products. The idea here is that insurers will gain an edge in 2016 if they handle underwriting decisions across multiple products including primary, excess and international.
“Clients will benefit from the combined casualty approach that some carriers are pursuing,” Marsh said. “This approach can improve pricing, prevent coverage gaps, allow for cross-collateralization, and allow insureds to take a fresh look at global retention philosophies.”
As part of the combined approach, clients will want to place higher local underlying limits. Marsh said this is being driven, in the face of more assertive regulators, by “stringent contractual obligations” and a wish for more consistent compliance.
Insurers that take this combined casualty approach will gain with these efficiency improvements, Marsh said, especially in the face of regulatory toughness.
Insurance coverage and the sharing economy. Marsh said that insureds will begin to have more options from personal lines than commercial lines insurers for the sharing economy. This comes as challenges remains on how to define an employee and what kind of coverage that person needs.
Even so, Marsh said that coverage options will remain limited. This will come as the market begins to hash out who is or isn’t an employee in the on-demand economy, and what kinds of benefits he or she is entitled to.
Employees will have to adjust to court rulings that could affect payrolls, health care costs and loss exposures, Marsh said. But the results could also “bolster the on-demand economy, reduce employment rolls and save employers costs.”
Broader focus of litigation. The prediction is that litigators will move beyond automobile liability claim settlements into areas such as traumatic brain injury, police brutality and post-traumatic stress disorder.
As this comes to play, Marsh said that insurers must use loss prevention and loss mitigation techniques to minimize legal expenses and settlement costs.
Smart technology. Marsh predicts that workers compensation injury prevention will embrace smart technology, embedding more commonly in everything from glasses to watches, vests and hart hats. The data that wearable devices capture would serve as both feedback to help prevent injuries for wearers, and also information that can lead to worksite improvements.
Social media as a fraud prevention tool. Here, social media-related sharing of videos, photos and other data could increasingly help investigators and adjusters build their files for injured parties seeking claims.
Marsh said the practice is already in play, but it will increase in 2016, making it more likely that fraudulent claims will be exposed.
Drones are coming. Insurers will be forced to determine how insurance will apply to drones, whether they are covered under aviation, technology or general liability policies. This in inevitable, Marsh said, because drone use continues to grow, and businesses are contemplating drone use for everything from deliveries to marketing or news reporting. Insurers themselves are testing drones as a way to access disaster sites as they gather claims data.