By Mark A. Hofman
Intense competition among commercial property/casualty insurers is expected to continue this
year, according to a report by Marsh L.L.C.
With an abundance of capacity, further rate flattening is “likely” as 2015 progresses, according to
Marsh’s “United States Insurance Market Report 2015,” released Monday. The report added that
“nonetheless, P/C insurers can be expected to focus on fundamentals”. This includes protecting their
balance sheets through such measures as pricing adequacy, underwriting discipline, capital planning
and preparing for catastrophes, according to Marsh.
The report noted that the property market softened in 2014, “and is set to continue doing so
into 2015, barring an unforeseen change in circumstances,” including significant catastrophe loss.
Marsh predicted that organizations without catastrophe exposures can expect strong
competition for their property programs this year, with both favorable terms and conditions as well
as price decreases typically averaging 5% to 15% depending on the policyholder’s specifics. But
catastrophe-exposed entities can also expect decreases of up to 15% “depending on their risk profile
and concentration in catastrophe-prone areas. Insurers will continue to scrutinize coverage terms and
conditions around such areas as flood, storm surge, and contingent business interruption”, Marsh
Marsh pointed out that business interruption losses “stemming from cyber-attacks are an
increasing concern for many organizations.”
The report said that actions such as data breaches, hacking attacks, and “software failures
resulting in supply chain and operational disruptions can cause significant loss of income, increase
operating expenses, and damage an organization’s reputation.”
But it also pointed out that property policies typically limit business interruption coverage to
damage to and/or loss of use of tangible property resulting from a physical peril. Some insurers go
even further by expressing excluding any damage to data.
“Cyber policies can provide limited coverage absent physical damage for business
interruption, extra expense, and contingent business interruption,” said Marsh. “Cyber insurance,
however, is just one part of a well-planned and effective risk management program that also includes
policies and protocols to prevent and mitigate technology risks.”
Cyber issues also impact casualty coverage, said Marsh. The report noted that while casualty
rate increases — which had edged up slightly last year — have slowed.
But policyholders “will continue to face cyber risk challenges stemming from a 2014 decision
by the Insurance Services Office,” said Marsh. “ISO contends that damages related to data breaches
and certain data-related liabilities are not intended to be covered under GL policies, and should be
addressed through dedicated cyber insurance policies.”
Marsh noted that cyber coverage remains one of the fastest growing sectors in the insurance
market, with continued growth in premium and policy count, as well as the “steady influx” of new
capacity. “Continued growth in supply and demand for cyber insurance, coupled with unexpected
loss activity, led to significant volatility in pricing during 2014, which is likely to continue in 2015,”
Marsh said that strong competition generally prevented large rate changes for umbrella and
excess liability. In fact, “most insureds renewed in the fourth quarter with rate decreases,” said
Marsh. The report added, though, that insurers are exercising greater discipline and requiring more
detailed underwriting submissions.