Cyber insurance rates could rise 30% in 2016 for large health care, point-of-sale retailers: Willis Towers Watson

The withdrawal by American International Group Inc. from some monoline site pollution markets “will result in increased competition” as other carriers look to pick up the displaced business, losses arising from the explosion last August in the Chinese port of Tianjin could reach $6 billion and some retailers could expect cyber insurance rates to rise 30% this year, Willis Towers Watson plc said in a report announced Thursday.

In Marketplace Realities 2016 Spring Update, Willis Towers Watson  revealed its predictions on rate changes for several commercial lines this year. All dollar figures are in U.S. currency.

“Cyber renewals are seeing primary premiums increases of 5% to 15% for most buyers and 15% to 30% for [point of sale] retailers and large health care companies with no losses – with additional increases on excess lawyers,” stated Willis Towers Watson, formed by the recent merger of commercial brokerage Willis Group plc with Towers Watson & Co.

Overall, “soft prices” prevail in 2016, Willis Towers Watson said in the report, edited by Matt Keeping, New York City-based head of broking for North America.

“While a slight majority of lines are still seeing decreases, the level of those decreases is smaller,” the firm added.

“Excess cyber losses have caused a few markets to stop writing large accounts and others to increase their premiums significantly in upper layers of $75+ million placements,” Willis Towers Watson said. “Available limits in the marketplace are approximately $350-$400 million.”

Meanwhile, “capital markets are reviewing cyber to determine if they can provide some additional relief,” according to the report.

Willis Towers Watson predicts rate increases of 10 to 25% for combined environmental and casualty/professional. It is predicting flat rates to decreases of 10% for both contractor’s pollution liability and site pollution liability.

“AIG Environmental decided to non-renew four lines in the U.S. in Canada,” Willis Towers Watson noted. Those lines are site pollution, environmental transportation, contractors/pollution/professional/general liability and contractors pollution/professional.

“AIG’s competitors are expected to compete for the displaced business of the former market leader,” according to the report, which predicts that AIG’s exit from monoline site pollution coverage “will result in increased competition and a continued soft market for all but the most difficult pollution placements.”

In property reinsurance, Willis Towers Watson reported further reductions during this year’s Jan. 1 renewals, after property reinsurance rate reduction of 17% in 2014 and 11% in 2015.

The Aug. 12 explosion in the port of Tianjin, China “is expected to cost insurers at least $2 billion and some fear it will creep to between $5 to $6 billion,” Willis Towers Watson said. Those explosions, The Associated Press reported earlier, came from a warehouse containing sodium cyanide, which can form a flammable gas on contact with water. Much of the loss came from high-value cars in transit in Tianjin, which got destroyed or damaged.

Last month, in its Natural Catastrophes and Man-Made Disasters in 2015 report, Swiss Re Ltd.’s Research and Consulting unit reported that provisional losses from the Tianjin disaster, which killed 173, were US$2.5 to $3.5 billion.

“Tianjin could ultimately become one of the largest man-made insurance loss events worldwide ever recorded,” Swiss Re said at the time. In its report, Swiss Re said the largest man-made loss to date was $25.2 billion, adjusted for inflation to 2015 U.S. dollars, arising from the hijacking Sept. 11, 2001 by al-Qaeda operatives of four airliners. The second-largest man-made loss, at $3 billion (adjusted to inflation) was the explosion in 1988 of the Piper Alpha offshore oil platform in the North Sea, Swiss Re said in its Natural Catastrophes and Man-Made Disasters report.

In Marketplace Realities, Willis Towers Watson said Thursday it predicts no change to decreases of 10% in aerospace rates for airlines, manufacturers and service providers. Rates are expected to be flat to dropping 20% for general aviation, while lessors and financial institutions are predicted to have decreases of up to 20%.

In errors and omissions “some carriers have decided to withdraw from retail, health care and financial institution sectors when cyber exposures are significant,” Willis Towers Watson said. The firm is predicting flat to 10% increases in rates for E&O policyholders with good loss experience and rate increases of 20% to 25% for policyholders with poor loss experience or in loss-prone industries.

“The terrorism and political violence insurance marketplace is evolving, with the introduction and development of new risk transfer options,” Willis Towers Watson said.

Some of those options include first-party cyber coverage, threat of a malicious act cover, deadly weapon/active shooter protection, post-event loss of attraction products and coverage for business interruption resulting from threat of a terror event, Willis Towers Watson reported.