The international casualty market remains highly competitive with capital in plentiful supply and buyers generally well- positioned to negotiate effectively with incumbent insurers. Whilst the past year has seen the property aspect of the P&C sector severely affected by natural catastrophes, little of this has fed back into the casualty market.
There has been some upward pressure on rates in specific market sectors such as U.K. motor, where the claims experience has been particularly poor (feeding into fleet as well as private motor now), but the market remains highly competitive in areas such as product and general liability. The U.K. employer’s liability (EL) market would be a partial exception to this trend, having yielded a return on capital only once in the past two decades. U.K. EL rates have remained flat rather than seeing any reduction.
Insurers are under growing pressure to increase rates but have been severely hampered in their attempts to do so by the continuing plentiful supply of capital. Poor loss ratios over the past few years and in the current accident year, combined with a depressed investment environment, have taken a toll on insurers’ profitability. Hence, underwriters are looking closely at terms and conditions, particularly on lines where new treaties provide insufficient cover, pushing for higher retentions, and attempting to hold a firmer line on rates.
It would certainly be premature to discern any clear sign of a hardening market, but 2011 could yet end up looking like a year of transition for the casualty market, and buyers would be well-advised to engage with their markets early in the renewal process to avoid any unpleasant surprises on rates or retentions, particularly if their claims experience has deteriorated over the past few years.
A number of carriers have made efforts to compete on the quality of service they provide in terms of their ability to issue compliant paper and handle the tax aspects of global casualty insurance programmes. Zurich’s Multinational Insurance Program (MIP) is a notable example of this. QBE has recently increased its focus on competing in this area of the market, alongside the likes of Chartis, XL, ACE, and AXA.
Product recall and contamination issues have continued to hit the headlines during 2011. In August, Cargill initiated a voluntary recall of 36 million pounds of turkey products after salmonella was detected at one of its plants. It clearly makes sense commercially and ethically to respond proactively to an incident that could harm consumers—not to mention the producer’s brand—but it is important insurance buyers closely examine policy wordings to ensure nonmandatory recalls do not compromise their ability to claim for reasonably incurred losses.
A continuing pattern of high-profile major incidents such as the Cargill recall has heightened awareness of both the potential for and the cost of recalls, fueling growing buyer interest. Recent losses have encouraged some underwriters such as Chartis to take a firmer line on rates, decrease limits, and require higher self-insured retentions. But in general the market remains highly competitive. Insureds that have not experienced losses or major changes in revenue will be well-advised to market renewals widely and evaluate their options fully.
Hampered by budget cuts, the U.S. Food and Drug Administration (FDA) has yet to make widespread use of the significant new powers afforded it by the Food Safety Modernization Act (FSMA) signed into law on 4 January this year. As yet, the FSMA has had little effect on the contaminated products insurance (CPI) market, but there is clearly no room for complacency. In the meantime, the priority for food producers must be to stay off the FDA’s list of “high-risk” producers that are likely to be the ones in the firing line when the FDA can afford the bullets for its new gun.