2018 Commercial Insurance Outlook: Data, Innovation

This year, underwriters face pressure to fund 2017 losses, which could lead to the end of what was a sustained soft market for commercial property insurance. Overall, organizations should brace for rate increases and a hardening renewal market spurred on by devastating events.

In the property market alone, insured losses from catastrophic events are expected to exceed $100 billion. While there is still a degree of uncertainty, property rates are forecast to rise anywhere from 5 to 25 percent. Casualty rates are predicted to be flat or increase by small amounts as pressure from catastrophic losses spill over into other lines. Auto rates for businesses will also see single-digit increases.

In addition, most cyber insurance buyers will face modest increases of up to 5 percent at renewal. While we will likely see more rate increases than in years past, underwriters generally offer premium decreases to organizations that demonstrate increased levels of security and internal policy controls.

Initial estimates for total industry losses range anywhere from $50 billion to $200 billion, which is a serious blow any way you cut it. While specific figures are unknown, additional capacity will likely be deployed into both property and casualty lines to offset rate increases.

Overall, catastrophic events, alongside additional factors, could lead to higher renewal rates in 2018. This represents a major shift in the insurance industry—an industry that hasn’t faced challenges and losses of this magnitude in quite some time.

The latest market predictions aren’t all bad, however. The following are three positive trends that will likely impact the industry in 2018:

Data-driven underwriting

More than ever before, underwriters have access to cleaner data, allowing them to make extremely accurate loss trend predictions. Companies that take the time to mitigate their exposures and create an in-depth risk profile will likely enjoy better rates. Just be sure to catalogue your organization’s differentiators to stand apart from the pack.

Carrier innovation

From an insurer’s perspective, there are a number of opportunities to fight against compounding losses. Product innovation, diversification and targeted channel strategies will be critical for insurers looking to innovate and have a successful 2018. These innovations could lead to streamlined business practices for insurers and future cost savings that could trickle down to policyholders themselves.

Lower rates for certain lines of coverage

Despite a hardening market for certain lines of coverage, mainly property, there will be continued low rates for some lines of coverage. In addition, experts believe that, because global growth prospects remained strong throughout 2017, a recession is unlikely and the risk of inflation is low.

The truth is no two businesses are alike, and many considerations are taken into account when pricing insurance policies. When it comes to insurance, the best advice is often to hope for the best and prepare for the worst. However, it is possible to make a number of predictions based on the current state of the insurance market. This outlook is designed to provide you with a general overview of the trends and forces that have a direct impact on 2018 premiums per line of coverage.

In 2017, catastrophic events, new technologies and cyber security were notable forces. While some of these trends spill over into 2018, there are a number of new market developments insurers are monitoring

There are a number of new market developments insurers are monitoring, including the following:

Protectionism

Protectionism, the idea of shielding a country’s domestic industries from foreign competition by taxing imports, could be on the rise in 2018. In the United States, policies have become discriminatory toward G-20 countries, creating the potential for trade issues. The United States has already cancelled its participation in the Trans-Pacific Partnership and has threatened to increase tariffs on imports from China and Canada. In addition, the future of the North American Free Trade Agreement (NAFTA) is up in the air, creating a lack of confidence and a climate of ambiguity. It should be noted that protectionism isn’t increasing on a global scale.

U.S. protectionism is a huge threat to Canada’s economy

A threat that the Bank of Canada has cited in the past as a significant concern. Put simply, protectionism has a negative effect on Canadian access to the U.S. market. Protectionism creates serious uncertainty for key trade agreements like NAFTA, which has led to Canadian organizations holding back their investments. This has a long-term effect on the economy, slowing employment growth in sectors that would otherwise be expanding.

A growing cyber insurance market

The ever-present threat of costly data breaches has led to a rapidly expanding cyber insurance market. With each widespread cyber incident (Equifax, Meltdown, WannaCry, etc.), the demand for tailored insurance solutions becomes more apparent. Net premiums for this type of coverage are expected to rise, potentially reaching $14 billion globally by 2022.

Natural disasters

Natural disasters will once again be a significant force in the insurance market. The following events are some of the major catastrophes expected to impact businesses and insurers alike in 2018.

The 2017 hurricanes had a vast impact on multiple classes of businesses, and a full assessment of losses has not yet concluded. Businesses will have to continue to plan for these large-scale natural disasters, obtain proper coverage and put business continuity plans in place.

Floods will continue to be one of the most widespread and frequent hazards for organizations in 2018. Urbanization and population booms mean that more people are moving to flood-prone areas, increasing the financial impact of major floods. Despite these factors, flood exposures will likely remain uninsured across major insurance markets on a global scale, creating a serious protection gap. Insurers will have to work with government bodies in order to provide protection for residents and businesses.

The above trends are just a few of the factors anticipated to influence the 2018 insurance market. While things like natural disasters, increasing cyber events and unpredictable increases in claims are volatile and largely out of the hands of underwriters, companies are not powerless.

You are encouraged to keep the above issues in mind when building a comprehensive risk management plan alongside a qualified insurance broker. Remember, implementing policies and preventive measures can go a long way toward managing your organization’s overall risk.