North American commercial insurance buyers will continue to pay more across most lines of business and see their coverage terms and conditions scrutinized, as the industry braces for a potential loss of up to $80 billion from COVID-19, according to a report issued Thursday by Willis Towers Watson PLC.
Despite the decline in economic activity leading to large reductions in insurable values, not a single line of business is expected to see rate decreases in the months ahead, Willis said in its Insurance Marketplace Realities 2020 Spring Update.
“The pandemic and economic downturn will very likely extend the hard market through 2021, with market discipline continuing as insurers’ losses materialize and their investment income deteriorates,” Joe Peiser, global head of broking, Willis Towers Watson, said in a statement.
Overall, 23 lines of business are expected to see increases, with 11 of those seeing steeper increases than they did in the fall of 2019, according to the report.
Umbrella/excess liability, directors and officers liability, and property are among the lines that will be most impacted by the pandemic, Willis said.
Just five lines – workers compensation, kidnap and ransom, terrorism, surety and international casualty – are projected to see either a mix of increases and decreases or flat renewals.
Catastrophe-exposed property risks with losses are expected to see rate increases of 30% or more, while catastrophe exposed risks will see increases of 15% to 25%.
Steep rate increases continue and may accelerate, and the economic downturn brought on by the pandemic could have a “deep and broad impact on property risk and coverage,” the report said.
There is also a “vast cloud of uncertainty” hanging over the market as insurers face lawsuits and legislative actions attempting to force them to provide business interruption coverage for pandemics both prospectively and retroactively, Willis said.
Buyers can expect increased scrutiny by insurers as they look to limit or reduce coverage, it said.
The commercial liability marketplace, particularly for umbrella/excess liability is becoming “dramatically” more challenging, as deteriorating loss trends continue to hurt profitability, Willis said.
Umbrella liability rates are expected to increase 40% or more, while excess liability rates will increase 150% of more for high hazard events, according to the report.
The North American liability marketplace continues to experience “significant” catastrophic losses from wildfires, active shooter, concussion/traumatic brain injury litigation, auto accidents, opioids, and sexual assault and molestation claims, Willis said.
Liability insurers are also reevaluating coverage grants, reducing available capacity and requiring higher attachment points, it said.
In directors and officers, buyers already bracing for significant price hikes could face further upheaval given the overall economic uncertainty and the likelihood of a growing number of bankruptcies, Willis said.
If executives face blame for decisions related to the pandemic the market will worsen, the report said.
D&O rates for public company risks are expected to increase by 15% to 50% or higher, while rates for private/not-for-profit risks will increase by 7.5% to 50% or higher.
“Renewals are challenging, with the COVID-19 environment heightening underwriting scrutiny of D&O exposures,” the report said.
Despite the uncertainty brought about by the pandemic, business is being conducted with a strong degree of civility, with insurers granting accommodations, especially in extenuating circumstances, Mr. Peiser said in the report.
Another positive development amid the crisis is the potential creation of a federal backstop for pandemic risk and insurance, he said.
“Pandemic risk is different, and the exploration of solutions should be robust and involve all stakeholders, public and private. But let’s go one step further and include other systemic global challenges and priorities, such as climate change and cyber terrorism,” Mr. Peiser said.
More insurance and risk management news on the coronavirus crisis here.