North American insurance lines that had sidestepped the major price upticks of recent years are now being drawn in, with workers’ compensation and cyber just two of the sectors facing significant increases in Q1, although with potentially $20bn of new capacity set to make its presence felt some stabilisation may be on the cards for other segments, according to Aon.

Aon

  • Increasing number of North American insurance lines facing major rate rises
  • Cyber beginning to see “significant spikes” in rates
  • Increases may begin to stabilise in some sectors as capacity enters
  • US business still seeing rises but moderate conditions emerging
  • Canadian carriers beginning to eye growth as profitability improves

With some product lines such as property, financial lines and umbrella/excess casualty in the US now experiencing their 12th to 13th consecutive quarter of rate increases and those in Canada facing their seventh to eighth consecutive quarter, some insureds have been hit with substantial rate-on-rate rises for possibly up to four renewals, Aon highlighted.

Yet pricing in the North American insurance industry continues to rise, with the cost of coverage escalating in response to heightened loss costs and low interest rates, the broker said in its new Global Market Insights Q1 2021 report.

And now significant price increases are beginning to emerge in lines of business that, so far, had avoided the rampant rate rises of recent years.

“The few lines of business that had not experienced consistent, significant price increases like workers’ compensation, cyber and professions (namely, lawyers and accountants) are now also starting to experience notable upward pricing trends,” Aon said.

North America Q1 2021 rate trends

Rates across all North American insurance sectors increased between 11 percent and 30 percent in Q1 2021, according to Aon, other than real estate, where pricing went up by 1-10 percent, and pharmaceutical and chemical, where pricing jumped by at least 30 percent.

Cyber, Aon said, “is starting to see significant spikes” as insurers respond to an elevated risk profile due to threats such as ransomware as well as rising frequency and increasing severity of claims.

The increase in pricing means that “all options are on the table” when it comes to North American insureds managing their coverage. Alternative risk transfer solutions such as self-insurance, the creation or expanded use of wholly owned or non-owned captives, a shift in capital sources and changes to insurance program structure such as increasing deductibles are all being considered, Aon said.

Despite this market flux, the broker said that “stabilisation is on the horizon”, with new capacity – potentially as much as $20bn – entering the (re)insurance industry this year.

“As more capital is deployed during the course of the year and pricing adequacy is reached in some spaces, a shift in market conditions may begin to occur,” Aon predicted.

North America Q1 2021 market dynamics

US market “challenging” but moderate conditions possibly emerging

While price rises continue to dominate the “challenging” US insurance market, Aon said “there are signs that more moderate conditions may be emerging”.

As it stands though, pricing continues to increase with pressure on both limits and insureds’ retentions.

“The January 1 treaty renewals were more favourable than expected; however, there was a tightening of terms and conditions, and these restrictions will inevitably pass down to client placements,” Aon said.

The broker said new capacity is entering the space, while insurers’ appetite for business is beginning to expand in some key areas of the market. At the same time, Aon noted that several key insurers have made some high-profile hires, and that movement has led experienced underwriters to undertake more aggressive pursuits of placements where there is inherent familiarity.

In the US insurance market, insurance pricing in 2021’s first quarter for small to mid-sized accounts increased in every line bar products liability, where the cost of coverage was flat, Aon said.

In the crisis management, employers’ liability/workers’ compensation, environmental, surety and trade credit sectors, rates were up 1-10 percent, while in automobile, aviation, casualty/liability, construction, financial lines, marine, professional indemnity and property, pricing was up by 11-30 percent.

In cyber, rates in Q1 2021 increased by more than 30 percent.

When it comes to large and complex client placements, it was largely the same story, with products liability the only segment where pricing was flat.

Large and complex client placements

In construction, crisis management, employers’ liability/workers’ compensation, surety and trade credit, rates increased by 1-10 percent during the first three months of the year.

In automobile, aviation, casualty/liability, environmental, financial lines, marine, professional indemnity and property, pricing went up by 11-30 percent.

And again, cyber was the only sector where rates were north of 30 percent in Q1 2021.

Signs of stabilisation in Canada

Canadian insurers have largely made the adjustments necessary to remediate their portfolios, and are now starting to shift their focus towards growth and profitability, according to Aon.

However, as the broker noted, many insurers in the country still posted an underwriting loss for 2020. So, while there are positive signs that the rate increases seen in recent years may be abating, “the market softens much more slowly than it hardens”, Aon said.

“It could be a few renewal cycles before reductions are seen,” it added.

Underwriters are still cautious, and they continue to tighten terms and conditions, while in some cases they are offering less capacity.

“The market is seeing a high volume of submission activity and some underwriters are overwhelmed and responding slowly,” Aon stated.

For small to mid-sized placements in Canada, surety was the only sector where rates were flat in the first quarter of this year.

In the environmental, marine and trade credit lines, pricing increased by 1-10 percent, while in automobile, aviation, construction, energy, professional indemnity and property, rates went up by 11-30 percent.

Even greater rate rises were apparent in the casualty/liability, financial lines, products liability and property/casualty package sectors, with pricing up by 30 percent or more in the first quarter of 2021.

Large and complex client placements - Canada

In the large and complex client placements sector, as with the SME-focused space, surety pricing was flat in Q1 2021.

Pricing was up 1-10 percent in the energy, environmental, marine and trade credit sectors. In automobile, aviation, credit/liability, professional indemnity and property, rates increased by 11-30 percent on average during the first three months of 2021, Aon said.

And in the construction, financial lines, products liability and property/casualty package classes, pricing in 2021’s first quarter went up by 30 percent or more.