Property rates are seeing the greatest decreases on average, thanks to competition among both primary carriers and reinsurers.

On the following pages, see a breakdown of rate activity for property risks and casualty risks, as well as a focus on the U.S. rate environment and Marsh's take on the emerging and evolving insurance market for drones and cyber (all graphs are from Marsh Global Analytics).

Commercial Property

Competition is everywhere in the global property market. Rates for catastrophe-exposed risks are falling in the primary market—a side effect of the competitive landscape in the reinsurance market, where alternative capital has provided even more capacity.

But even in the primary market, Marsh says existing insurers are looking to expand market share in the property space, while new capacity is entering the market. “Rates for property insurance fell in most major global regions,” Marsh says, adding that Latin America-Caribbean and continental Europe seeing the larges declines at 8%-9%.

In the U.S. new entrants strengthened competition, and Marsh says predictions of a lighter-than-average Atlantic hurricane season mean insureds “generally were able to secure favorable premiums, terms and conditions and limits for their property insurance.”

In Q2, Marsh says, rates in the U.S. were down on average in the high-single-digit range.

Casualty

On the surface, the global landscape appears the same in the casualty market as it is in property: plenty of capacity and competition. But Marsh notes that in some areas, the market is still driven by loss experience.

Marsh cites the power and utility sector as one area where losses dictate pricing. “In addition,” says Marsh, “some insurers tried to push for cyber exclusions on programs with large concentrations of consumer activity.”

But in general, insurers are competing in the casualty space, and that means favorable pricing for buyers. Marsh says insurers “were loath to walk away from good business, even if it meant accepting lower rates.”

D&O

Marsh says professional liability claims frequency has remained low, fueling capacity, competition and stable rates. “For publicly traded companies, the market for directors and officers liability insurance generally improved in the second quarter, with abundant capacity and strong competition,” states the Marsh briefing.

For U.S. private companies, though, the story was different. Rates increased despite healthy competition for business. Marsh attributes this to significant claims activity since 2011 for insurers that provided broad coverage to private companies.

In April, Ann Longmore, then with Willis but now with Marsh's FINPRO practice, said insurers were looking to “vastly narrow the scope of the cover” for private companies. She explained why the private-company D&O market was challenging for insurers, stating, “The private-company form is really very broad. It picks up any claim against a company as the directors and officers unless specifically excluded. And so over the last few years, carriers have ended up paying claims that fell outside their normal expectations—whether they were intellectual property, or antitrust, or contract related—the claim payments for that sector have outpaced, in the minds of many underwriters, the premium or portfolio of premiums associated with them.”

Focus on the U.S.

As noted earlier, U.S. property rates are decreasing on average as insurers enjoyed profitability last year, capacity remains high and the industry has avoided a high number of major losses over the last 18 months.

For casualty, Marsh says average rates continue to increase slightly, but the level of increase is “generally diminishing, and competition in this sector looks to be slowly driving a softening in pricing.”

By line, Marsh says average rates for general liability and auto liability ranged from flat to 3% increases “for favorable risks” in Q2, indicating a softening. Marsh says fewer clients saw increases in Q2 and more saw decreases in these lines.

Rising medical-claims costs continue to impact workers' comp, with rates flat to up 5% on average in Q2. “Companies with California workers' compensation, truck fleets and New York construction exposures were under particular scrutiny by underwriters,” Marsh says.

Marsh says the recent trend in the U.S. of increasing excess and umbrella rates appears to be reversing. “In the absence of a market-changing loss event and with abundant umbrella/excess capacity, the cycle seems to be softening, despite the continued low-interest-rate environment for insurers,” the briefing says. “Challenges do remain in industries deemed to be high risk, although it appears that rate increases are moderating in these areas as well.”

As for exposures, Marsh says, “Payroll, total insurable values, revenues and employee numbers all increased modestly in the second quarter of 2014, with employment showing signs of a possible acceleration in growth.”

In fact, Marsh says insurers are willing to accept rate decreases if accompanied by more year-over-year premium related to exposure increases.

Property insurers remain concerned about flood risks, contingent time element exposures, contingent business interruption without documentation and storm surge, says Marsh.

Coverage spotlight: Drones and cyber

Marsh says coverage inquiries around unmanned aerial systems (UASs) “increased substantially” in 2014 as companies explore commercial opportunities. “In the US, this is driven by preparation for the Federal Aviation Administration (FAA) to open commercial airspace,” notes Marsh.

Insurers are “working on new products to cover hull, general liability, products liability and property damage risks resulting from drone use,” says the briefing, but risks remain largely unknown with respect to commercial use of drones.

“Nevertheless,” says Marsh, “we expect to see capacity to underwrite drone policies increase as insurers become more familiar with the expanding private sector use of the technology.”

Cyber

Marsh says cyber insurance “continues to evolve both in terms of organizations' exposures and insurers' responses.”

As the market evolves, so does the understanding of risks. Marsh says it worked with “Bermuda markets” to create a fines and penalties enhancement that “essentially provides drop-down coverage as an excess and difference-in-conditions component of their standard cyber capacity.”

Carriers are also understanding risks that follow a cyber event, such as business interruption, and including provisions such as a “system outage/technology failure” trigger, which Marsh says expands coverage beyond the cyber-attack peril.

“Several insurers also offer dependent business interruption coverage for risks created by outsourcing and the cloud,” says Marsh.