2016 US Casualty Market Outlook

April 05, 2016

The casualty insurance market in the US is fluid, and it pays to keep up with the trends and outlook in this changing market. These top 5 trends will help you be aware of the challenges and find the opportunities:

1. Competition is putting pressure on rates
The primary casualty market is increasingly competitive. Increased capital and capacity, along with upward trending underwriting results is forcing primary casualty rates down. Rates, and therefore  premiums, will likely continue to decline until some players exit the market, which will stabilize premiums.  Broker partners are looking to reduce rates by an average of 10% on risks that are not distressed.

2. Technology will improve efficiency
The stage is set for technology innovation in the casualty market. One way to combat the downward pressure on prices is to employ some of these disruptive technologies to improve efficiencies and cut costs. Here are some ways technology will benefit the market in 2016:

• Shared exposures—cars, homes, home businesses, etc.— will force the industry to rethink the status quo insurance model

• Modeling tools will help underwriters make more meticulous decisions

• Technology platforms like Google Compare will enable consumers to comparison shop for insurance, as they do now for credit cards and mortgages

• New exposures will drive new products such as coverage for unmanned aerial vehicles (UAVs, or drones) and privacy, for example

3. Consolidation will only increase competition
Consolidation will create carrier growth and increase competition, as profitable organic growth  becomes increasingly more difficult. Mergers and acquisitions will remain a dominant trend, as in the acquisitions of Chubb by ACE Group, and of Catlin by XL.

4. Differentiation is difficult
Carriers are working harder to differentiate themselves in the marketplace through service standards, enhanced coverage, and recommendations for loss control and risk management. Those areas that have historically been difficult are now very soft, such as two-year policy terms placements.

5. Investment rates continue to decline
Operational challenges include declining investment yields that will require a stronger underwriting performance in order to meet profit objectives.

Exceptions to the trends
Standalone product exposures, the nutraceuticals and life sciences markets, oil and gas exposed risks, New York construction, and habitational portfolios, including subsidized, student and senior housing are some exceptions to what’s generally trending in the market.

Overall the outlook for 2016 is for a buyer’s market, with carriers taking on more risk for fewer total premium dollars. Underwriting discipline is needed to prevent drastic rate and premium reductions on renewal business.