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US commercial premiums surging: WTW

North American commercial insurance prices are expected to increase in every line except one next year in one of the hardest markets in decades, while uncertainty remains around final costs for insurers from the COVID-19 pandemic, Willis Towers Watson says.

“We have to look back to the defining hard market crisis of the mid-1980s to see market conditions of the proportions we are currently experiencing – one of double and triple-digit rate increases in most lines of business and dramatically reduced capacity in key lines,” Global Head of Broking Joe Peiser said.

Foundations for current conditions were laid by natural catastrophes in 2017 and 2018, years of declining prices and historically low interest rates.

A demonstrable increase in the frequency and severity of natural catastrophes around the world appears to be systemic, perhaps driven by climate change, while there has been a persistent increase in man-made property damage losses, the group’s Insurance Marketplace Realities 2021 report says.

Rising liability loss severity in areas such as product liability, directors’ and officers’ and employment practices has been “crudely attributed to ‘social inflation’,” according to the report.

“Whether one likes the term or not, the increase in losses are real and they are systemic,” it says.

The COVID-19 pandemic is hurting populations and economies, exacerbating the hard market.

In its previous report three months ago Willis Towers Watson estimated COVID-19 property and casualty industry losses of $US32-80 billion ($42-106 billion).

“At this point it looks like the upper end of that range may be where we land,” it says in the latest report. “There is cautious optimism that the final tally will not be much higher, but there remains uncertainty about the coverage litigation that is still in early stages.”

Willis Towers Watson says legal judgments against insurers that survive appeal could change a situation from a significant but manageable catastrophe into a solvency threat, and all eyes will be on the courts.

For most insurance lines, rate increases predicted for next year surpass those anticipated in the spring, while in a few cases flat renewals are now seen as the best outcome after reductions were earlier considered possible.

In the property market, increases should begin to moderate by mid-year barring another major insured catastrophe.

Mr Peiser says renewal results are not “huddled around” a mean percentage increase, with opportunities for insureds to differentiate their risks.

“Analytics and data-driven tools are increasingly changing the way both buyers and sellers approach the negotiating table when it comes to risk transfer,” the report says.