Market realities: 2017 forecast to protect your risk - by Spencer Macalaster

Spencer Macalaster, Risk Strategies Co.

As we enter the fourth quarter of 2016, our clients are asking for budget estimates on their 2017 renewals. What we have been saying and predicting has been met with enthusiastic applause. The markets for the most part have remained stable throughout 2016. Pricing through the first three quarters has seen flat to moderate rate reductions. One interesting difference in this marketplace is premiums will not be driven by capacity shortages, which is a typical hard market driver. Rate changes, if any, are primarily confined to inflationary levels, except for those risks in catastrophic loss locations, such as waterfront, wind prone and the like. The primary areas of concern looking into 2017 are legislative. Donald Trump’s presidential win is utterly stunning. For weeks leading up to the actual casting of ballots, national polls and major media outlets were saying the election was over and Hillary Clinton would coast into the Oval Office. Journalists felt free to treat Trump with utter disdain, and popular culture constantly vilified the Republican candidate, Trump went out and crushed Hillary Clinton. This is an astonishing turn of events. He won, convincingly, despite all the disbelief and promises that it could never happen. Republicans hold the majority in both the House and Senate and for the first time since 1928 the Presidency as well. The list of potential changes in policy direction are boundless, which opens the question of how will this impact the property and casualty markets in 2017.

Buyers nervous about changes in their property placements will fall into two distinct groups. Those with little catastrophic exposure will see competitive renewal options. Those with catastrophic exposure, especially to flood or wind perils, will see higher rate increases and higher deductibles. In our opinion the formula for 2017 remains: abundant capacity + low underwriting losses + uncertain economy = a competitive insurance renewal market.

Primary Casualty insurance (general liability and workers’ compensation) capacity remained healthy; insured’s should expect renewals of flat to rate of inflation increases. Favorable loss histories will dictate the outcome of the casualty renewal. Investment in loss prevention along with claims management and contractual controls will enhance your risk in the eyes of the underwriting community. One area of concern is the construction industry where litigation and antiquated laws are driving up rates. The umbrella marketplace has firmed more significantly than the primary markets and capacity is harder to negotiate and will be more expensive at renewal.

We believe the “tipping point” for most insureds has been reached when it comes to Cyber Liability. Make no mistake, all companies—big or small—are vulnerable to a privacy breach or a network security incident. Cyber liability can be attributable to human error, hackers, digital espionage, data theft, denial-of-service attacks, electronic sabotage, improper employee or contractor access, computer viruses, or programming errors. The threat is real and our clients have approached the exposure from both a prevention standpoint and insurance coverage standpoint. We recommend all companies evaluate cyber liability coverage during their next renewal cycle.

Executive Management Liability insurance continues to show signs of firming with most renewal rates increasing 10% or more, primarily driven by employment practices related claim exposure. Even companies with claim free exposures are experiencing rate increases. Companies with global operations should evaluate the evolution of corporate laws expanding the duties of D&O’s in many foreign jurisdictions. Coverage voids may exist for foreign D&O’s at subsidiaries of U.S. parent companies. Purchasing local D&O policies in countries that do not recognize non-admitted U.S. D&O policies is a prudent option.

Strong loss prevention measures combined with claims management and contractual standards are increasingly important, thereby presenting the best possible risk to the carriers. In addition to building strong risk management relationships with your broker and underwriters, approaching the marketplace early will allow for the negotiation of the most competitive program the markets will offer. We recommend you work closely with your insurance broker, prepare your submission early, and detail the precautions you have taken to protect your risk.

Spencer Macalaster is executive vice president and real estate practice leader at Risk Strategies Company, Boston.