The buyers market conditions in insurance and reinsurance may come to an end, as it faces a tipping point in the wake of recent major catastrophe loss activity, according to broking group Lockton.
The impacts of hurricanes Harvey, Irma and Maria, as well as earthquakes and wildfires, all point towards the potential for price increases, both in insurance and reinsurance, but Lockton notes that the market response remains “unpredictable” at this time.
Before the recent catastrophes the buyers market had persisted, as despite the softening of rates having decelerated considerably, the excess capacity from traditional and new sources had meant that protection buyers were benefiting from lower rates and better terms, Lockton said.
While it had been expected that this situation would persist, now following the catastrophe losses there is an expectation that a seller’s market will emerge, with rates and terms likely to rise and tighten, meaning more work for buyers as they look to get the best deal they can.
Lockton says that the losses will result in a “conceivable shift” in market conditions, especially in property insurance placements.
The losses have potential to drive price increases in property insurance and reinsurance, Lockton says, and the buyers market is at a tipping point as protection sellers look to firm the market through either, “more rigorous underwriting discipline and risk selection, less favorable terms and conditions, or increased cost of coverage.”
Lockton said that carriers at the recent Council of Insurance Agents and Brokers (CIAB) meeting in Colorado indicated that they expect rate increases of 20% or higher on loss hit accounts, 10% to 20% on catastrophe exposed accounts with no losses, and up to 10% for non-catastrophe exposed accounts.
“Significant rate increases” are expected in poorly performing market segments, such as habitational multifamily and frame builder’s risk, Lockton said. The broker also expects that some insurers will modify their underwriting protocols for certain regional perils.
However, the insurance market response to losses is expected to be “dynamic and unpredictable” and the price of reinsurance at key January 2018 renewals will help to drive the direction of property rates through the rest of the first-half of next year.
Retrocession market losses and the fact alternative capital providers have experienced a sizeable hit, means that pressure may flow through to the reinsurance market and onwards to property insurers as the year progresses.
Insurers will look to pass on reinsurance cost increases to their customers, and carriers will also reassess their reinsurance needs. Retentions could reduce as some carriers have failed to find the protection they needed from their reinsurers from recent events, as they had increased retentions over recent soft market years.
Additionally, many carriers may have realised that they lacked coverage at the top of their towers and had hurricane Irma barreled into Miami they could have lacked coverage, which may stimulate more reinsurance buying, Lockton explained.