The commercial insurance industry is comprised of a complex blend of risk assessment, prevention, and circumstances that are many times left in the hands of Mother Nature. Underwriters and insureds go to great lengths to ensure that every preventive measure and precaution is taken to mitigate the risk, but all the best practices, experience and prevention could not control the detriment that Mother Nature would cause in 2017. Now, in 2018, the insurance industry is trying to pick itself up and dust off after suffering from a $23.5 billion industry loss last year after $52.9 billion of catastrophic claims were filed. 2 To say that these figures will impact 2018 would certainly be an understatement.
Real Estate Property Insurers Are Quickly Declining In Number
Hurricanes Harvey, Irma and Maria along with the California wildfires left property and casualty insurers in the hole for over $5.1 billion in 2017. Because of all these natural disasters, especially within areas along coastlines, many insurers are no longer insuring properties such as condos, apartments and hotels along the coast lines. Owners of these properties can expect to see a rise when they do find an insurer and even companies without prior histories of claims can expect to fall victim to collateral damages with their premiums rising by at least 5% or more in 2018.
There is also expected to be a shift in the way underwriters will write these policies. Layers of coverage may experience drastic shifts in order to help mitigate the payout that another natural disaster could bring. Property insurers in this sector have taken a bottom line beating for years now, and 2017’s natural disaster lineup sent them in a rapid downward spiral that is going to be difficult to come back from. With a bulk of coastal hotel properties coming up for renewal prior to the June 1 kickoff of the 2018 hurricane season, there is quite a bit of unknown regarding what is to come in the way of coverage and renewal rates.
Cyber Threat Regulations Look to Mitigate Risk
Due to their ever-changing nature, cyber policies have always been difficult to underwrite, and cyber is the single largest area where companies are consistently underinsured. The financial services industry leads this with over $18 billion paid out in cyberattack claims per year. Now in New York, not only is the Chief Information Security Officer (CISO) responsible for developing a data security policy, but a board or senior members must approve it as well and ensure that cyber threats are being reported. This new practice is expected to be taken on as standard practice by the National Association of Insurance Commissioners.
Vehicle Fleet Premiums on Rise
Automobiles are not exempt from premium hikes either this year. As technology continues to advance and become more common in automobiles, it starts significantly impacting the bottom line when insuring fleets of vehicles. Higher levels of technology included in vehicles makes them greater targets for theft and create larger repair bills. Texting and driving amongst other forms of distraction are on the rise and leading to an increase of accidents which has caused insurance costs to continue on an upward trajectory. Hurricane Harvey also did not do any favors for premium costs either since it, “is believed to have damaged more vehicles than any storm in history—perhaps as many as one million.”2 All of these risks and costs remain a concern and require thorough underwriting for all insurance companies.
Brexit Coming Quickly for Insurers Located in EU and UK
March 2019 may seem quite a way off for most people, but this date marked as the Brexit deadline is top of mind for insurers who have offices in the EU and the UK. Insurers who conduct business in both locations may not have enough time to completely transition prior to this date and are facing decisions regarding employees coming and going between locations, operating plans, governance structures and other financial matters. “As this situation plays out, there could be a renewed focus on the UK insurance relationship with the United States, which was established long before the EU came into existence. The UK in general, and Lloyd’s in particular, is a key supplier of coverage for US risks, especially in the excess and surplus lines and specialty markets, and Brexit won’t change that.”3 Amongst all of this uncertainty, one thing is for certain: Brexit will have a direct impact on the global insurance industry.
As each year does, the P&C industry will see a great amount of change in 2018. One thing is for certain in 2018 in the P&C sector—the united hope for 2018 is to bring as little catastrophic loss as possible to offset 2017 and recent years past. However, as technology advances, creating new unknown risks, so will the need for new types of underwriting and risk mitigation strategies. Each year, the P&C industry adapts to what it has learned from the year prior and that cycle will certainly continue through 2018 and for years to come.
1 Digest FPN, www.advisen.com/tools/fpnproc/fpns/articles_new_43/D/306183800.html.
2 “P/C Insurers Lost $5.1 Billion on Underwriting in First Half of 2017: A.M. Best,” Insurance Journal, August 29, 2017.
3 Reuters, “Factbox: Impact on Insurers From Britain’s Vote to Leave the EU,” New York Times, September 11, 2017.