Benchmarking Trends: Casualty Rates Edging Upward

Pricing for casualty coverage lines was in transition entering 2013; trends are likely to be felt unevenly across industry sectors and to be dependent on client-specific risks.

The umbrella and excess insurance markets held more rate increases for clients in the fourth quarter than did any other casualty insurance line.

Insurance pricing for casualty coverage lines remains in a state of transition entering 2013, continuing trends seen throughout 2012. The trends are likely to be felt unevenly across the various industry sectors and to be dependent upon client-specific risk factors in the areas that make up the casualty lines — general liability (GL), workers’ compensation, automobile liability, and excess/umbrella.

General Liability

A minimal migration in GL insurance program structures, from guaranteed cost to loss sensitive, was seen in the fourth quarter of 2012 resulting from increasing rates (see Figure 1). Increased deductibles for some loss sensitive programs were also seen. In industries that showed signs of aggressive overall growth, rate increases were moderated to balance the degree of overall premium increase. Loss sensitive GL placements had experienced increasing rate pressure as 2012 progressed.

Those insureds with exceptionally good loss histories, strong safety controls, and lower hazard exposures generally continued to secure decreases at renewal. Terms and conditions remained relatively unchanged; however, increased underwriting scrutiny typically required more time to prepare submissions, management sign-offs, and strong analytical backing.

Workers’ Compensation

Through the fourth quarter, the workers’ compensation line of business generally operated at a historically unprofitable level for insurers. Seeking to return to profitability, insurers typically sought rate increases and higher retentions. Both the average and median rate increases ticked up slightly in the quarter (see Figure 2).

Employers that favorably differentiated their claims management and loss control programs generally fared best, while those willing to take more control through loss sensitive programs tended to be more insulated from rate increases.

Auto Liability

Auto liability insurance rates remained relatively stable throughout 2012 (see Figure 3). The share of clients securing rate decreases throughout the year varied by no more than two percentage points from quarter to quarter.

Most insurers sought rate increases in the fourth quarter, but typically agreed to rates that were lower than in their original quotes. A minimal number of insureds moved to loss sensitive programs, and a small percentage also increased deductibles on existing loss sensitive programs.

Additional underwriting scrutiny was common in auto liability insurance renewals, as was the case in other casualty lines. Clients with best-in-class fleet management strategies and favorable loss histories typically saw the best rates and terms.

Umbrella/Excess

The umbrella and excess insurance markets held more rate increases for clients in the fourth quarter than did any other casualty insurance line (see Figure 4). The average rate increase was 4.9%, an increase from 3.2% in the third quarter.

Many insurers sought an increase in attachment points, while overall limit deployment decreased. It is important to note that the rate change data in Figure 4 excludes programs that required a change in attachment, or total limit purchased. Otherwise, the average and median rate changes would be higher.

Such changes in structure were especially prevalent for more difficult classes of business, where many insureds saw an increase in premium with an increase in attachment point, and in many cases, restrictions on capacity at renewal.

As a result of rate pressure and market appetite, the structuring of non-traditional excess liability towers continued with the use of buffers, shorter limit leads, and captives as alternative structures contemplated in many renewals. These restructurings were not limited to what are generally considered to be the more difficult industries of construction, energy, chemical, and life sciences.