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Insights From Insurance Carriers

Lockton senior leaders recently met with executives from more than two dozen of our key insurance carriers. With the recent hurricanes, earthquakes, and wildfires, we want to share preliminary insight about how these events may affect your insurance pricing in the months ahead.

First and foremost, the scope of catastrophe (CAT)-related losses is not yet fully realized and the picture is just emerging. As such, this message is the first in a series of ongoing client advisories to inform you about potential market shifts following these events. Our focus is on ensuring that, over time, you have a clear picture of the broader marketplace dynamics and that there are no surprises with your renewal.

Here is a summary of what we heard during our carrier discussions:

Summary of Loss Impact

  • The total insurable loss from Hurricanes Harvey, Irma, and Maria and the Mexico earthquakes is commonly estimated from carriers and reinsurers at $100 billion. Some believe that it could ultimately be $120 billion. Northern California fires will only exacerbate the current loss environment.
  • The Impact from these latest catastrophes is different because of their aggregate impact.
  • Most carrier executives believe that this is still limited to an earnings hit for insurers. Some believe that a few insurers will face a capital hit (a decline in surplus).
  • Executives compared the property rate environment now to 2005 when Katrina hit. Some point out that their data shows that rates have shifted dramatically from “comfortably redundant” in 2005 to highly deficient today.
  • 2005: Rates were 20% redundant.
  • Today: Rates are seen as 30% deficient by carriers.
  • This means that carrier leaders believe that they must press harder for rate increases.

Summary of Rate Forecast

  • Carrier leaders unanimously expect property rates to rise. Most cited a similar strategy structured as follows beginning immediately:
  • CAT-exposed with loss: 20% and higher. Historically unprofitable property accounts will face the biggest rate increases.
  • CAT-exposed: 10–20% base rate increase.
  • Non-CAT property: 0–10% rate increase.
  • Virtually all markets agreed that any rate strategy will be deployed on an account-specific basis, versus a broad brush across their portfolios. This type of calibrated approach, however, has proven difficult for carriers in the past.

Please note, the above represents only the initial messaging as carriers seek to understand the full scope of their losses. Lockton continues to have open and transparent discussions with the marketplace. As your advocate, we will continue to monitor carrier pricing to ensure that you are not surprised by your renewal terms and have time to make informed decisions. More importantly, we will work closely to ensure that underwriters are evaluating our clients’ unique characteristics and providing pricing and terms that are market-competitive.

Look for further updates in the weeks ahead.