Casualty Underwriting - What’s Down the Line
In my last blog I discussed the state of the casualty market today and some of the more difficult classes to watch. But what about tomorrow? Casualty managers know one must anticipate what’s down the line in order to stay on top of trends and developments. There are a number of variables to consider when pricing business today to pay claims far into the future. Let’s look at two of those factors - future loss costs and emerging risks.
Right now, the casualty market is in a good place. Companies generally are more disciplined than what we saw in the late 1990s at a similar stage of the market cycle, and more decisions are data driven - using analytics to target profitable segments and determine "walk away" pricing.
That said, the casualty environment has been relatively benign; the big challenge for underwriters is to anticipate and identify future trends - then respond accordingly.
Casualty managers face issues such as understanding future loss costs for their businesses, managing reserve risk and determining the implications of severity trends. While the industry has benefited from low inflation, more disciplined underwriting and positive reserve releases, we are starting to see loss trends (both frequency and severity) in certain segments: commercial auto, the hospitality segment, some construction books. Think about auto liability and the adverse loss development the industry has seen recently.
With longer development patterns on General Liability, how are companies quantifying their future loss exposure? An account or segment with five years of no reported losses does not necessarily equate to "loss free." How has the business mix changed over time? Are reserves adequate? Is business priced appropriately today to pay claims much farther in the future? Those are the types of broader discussions we are having with clients.
What else is down the line? Numerous emerging risks are on our casualty radar. Chemicals are becoming more of a daily presence in consumer products, food and building materials, and some of these ultimately will be linked to disease. Traumatic head injury/concussion is another big topic now; not just the pending cases with the NFL but the wider implications these injuries may have on the insurance industry as this trend trickles down to colleges, high schools and other sports programs.
We are watching imported products from overseas because they don’t always have the type of regulatory oversight, safety or labeling controls as in the U.S. Dietary supplements are also an increasing concern as they are unregulated and do not need FDA approval.
Nanomaterials are evolving and their uses in consumer products are increasing. These ubiquitous materials represent a whole new range of products and potential exposures that are still not well-understood.
Continued advancements in auto safety technology and now the longer-term impact of driverless cars could have “destructive innovation” implications to the auto industry - through lower exposures (fewer cars) and ultimately a smaller auto insurance segment.
Rating agencies are taking a heightened interest in emerging issues as part of enterprise risk management audits. Gen Re’s global emerging issues group tracks risk exposures throughout their life cycles, from initial stages to more developed, broad industry action. For example, we’re watching the development of data breach and other cyber risk trends and the insurance industry’s evolving response to it.
Growth opportunities exist for companies able to respond to shifts in demand and demographics. Home sharing, ride sharing and drones are some examples of new liability exposures that also provide opportunities for companies willing to innovate and think differently about risk.
Just keep watchful eyes down the line - so the underwriting decisions you make today allow you to fulfill those claims commitments in the future.