Insure This By Bill Velin bill.velin@wellsfargo.com

2015 Insurance Market Outlook

t appears that 2014 was a profitable year for most insurers. With capacity at record levels and increasing optimism for the U.S. economy, the commercial insur- ance industry seems positioned for an extended “soft” market that could extend through 2015 and beyond. Percentage rate reductions for 2015, in general, are forecast to be in the high sin- gle digits, with a few exceptions – such as cyber liability. High profile data and pri- vacy breaches over the past year have heightened the awareness of cyber-crime and intensified the need for financial pro- tection against these risks. The insurance industry has, so far, offered a relatively sta- ble pricing environment in response, but potential escalation in the number and magnitude of these attacks – especially against smaller businesses who normally do not have the money to spend on strengthening their computer systems – could force prices of cyber liability insur- ance higher in the short term. Generally, however, the insurance industry today is healthy and strong, and it appears poised to remain that way for the foreseeable future.

I Property Insurance

The property insurance market is extremely well-capitalized going into 2015, and rate reductions will be achiev- able for almost all businesses. Those that have good claim experience and that have above-average construction and fire protection features will continue to receive the most favorable rate treatment. Accurate and quality underwriting data will further enhance renewal pricing. Insurers will remain disciplined, however, as profitability is crucial. As a result, prop- erty insurers are expected to be very com- petitive in 2015 with rate reductions available to most insurance buyers.

Liability Insurance In 2014, liability rates began moderat- 12 Automotive Recycling | March-April 2015

ing and decreasing in the second quar- ter. For 2015, this trend is expected to continue – with the majority of insurers experiencing flat to reduced rates throughout the year. Despite continued underwriting discipline, insurers are well- capitalized and competition is increasing across all liability lines. Primary liability capacity remains high for all lines with the exception of automobile liability. Markets will be willing to deploy their capacity more aggressively than in prior years, spurring competition. Specific to automobile liability, most insurers are requiring higher deductibles – especial- ly on heavier vehicles. It is not expected that the higher deductibles will be low- ered dramatically, and if they are, the additional premium will likely be pro- hibitive.

Workers Compensation

Beginning in mid-2014, most insur- ance companies began seeing rate stabi- lization or decreases in their workers compensation programs, and expect this trend to continue through 2015. How- ever, certain states, including those with high payrolls such as California and New York (and a few others) continue to expe- rience significant price volatility, primarily due to increasing medical and indemni- ty costs. Businesses with exposures in these states may continue to experience higher premiums.

Although not uniform from company to company, the workers comp market will remain static or experience moder- ate rate decreases throughout 2015 for the majority of customers. Some of the top national work comp carriers will con- tinue to reduce their writings of workers compensation as a percentage of their total book of business. Ultimately, the desire to be aggressive on risks with poor loss history or those in a challenging industry will be a challenge for both national and regional insurers. In a nut-

shell, while capacity is slightly down in the workers compensation marketplace, the market pricing should still be flat or down slightly, with moderate rate decreases for most businesses.

Network Security and Privacy Expansion and coverage terms have

been a recurring theme for the past cou- ple of years due to major security breach- es at some of the largest corporations in the country. This has heightened the awareness of cyber crime and intensified the need for better insurance protection against this risk. More clients are buying this coverage for the first time, with the focus on POS (Point of Sale) retailers and PCI (Payment Card industry) relat- ed financial injury. The forecast for 2015 is that the market will remain stable, the underwriting of the small to medium market segment will continue to be under scrutiny, and rates will continue to remain flat to up slightly due to increas- es in the competition. In summary, while the insurance indus-

try’s results have been aided by several years of low to modest property catastro- phe losses, a bad CAT year is always pos- sible. Should that “bad year” occur in 2015, it may slow or even potentially stop the rate reductions occurring across CAT perils, but it is unlikely to change the overall softening trend market-wide for the foreseeable future. The insurance industry today is healthy and strong, and its pricing structures are generally favor- able to even broader economic growth, which in turn contributes to the sustain- able health of the insurance industry – a virtuous cycle for 2015 and beyond.

For more information on how Wells Fargo In- surance Services can benefit your business, contact Bill Velin at 800-328-6311, ext. 3039, direct 952-830-3039, or by e-mail bill.velin @wellsfargo.com.