The FINANCIAL -- Despite rate reductions and low investment returns, commercial lines insurance is on track for positive underwriting gains in 2016. Favorable losses across most insurance lines and lack of multiple catastrophic property losses are driving this trend, according to the annual 2016 Market Outlook issued by Wells Fargo Insurance, part of Wells Fargo & Company. The report forecasts market conditions for a wide variety of product segments, including liability, workers’ compensation, environmental, international, technology, and cyber.
“2015 was another buyer’s market for both property and casualty commercial insurance and affiliated lines, with rate decreases from medium- to- high single digits to low double digits,” said Doug O’Brien, Casualty & Alternative Risk National Practice leader. “Barring any catastrophic events, we expect similar trends will continue in 2016 for a majority of industries and coverage lines. Rate decreases are expected in the mid- to- high single digit range for most lines as new and existing capital is deployed into the property and casualty market.”
Key Findings – Wells Fargo Insurance Market Outlook
Higher revenues, payrolls, and property values – With gross domestic product (GDP) growth expected to slow in 2016, expect to see higher revenues, payrolls, and property values upon which insurance premiums are based. This will also help to offset some of the premium lost by insurers through year-over- year rate reductions.
Higher investment returns – Moderately rising interest rates will provide an environment in which higher investment returns are possible for insurers.
More data analysis – Using data analysis to develop more sophisticated and accurate predictive patterns and loss trends continues to increase. Insurance companies, brokers, third-party administrators, and other vendors are utilizing first-party and third-party data as an underwriting tool, means of loss control and way to handle claims more timely and efficiently. However, it remains unclear whether the data used is interpreted objectively, the resulting conclusions are accurate, and recommendations are implemented appropriately.
Continued mergers and acquisitions – Achieving profitable organic growth is becoming more difficult as mergers and acquisitions in the insurance and reinsurance market continues. This trend will continue to drive cost efficiencies, increase product line offerings, provide for a global geographic footprint, and increase market share.