Property casualty insurers and their customers can look forward to a strong 2017.

2016-2017: Loss and opportunity in the property/casualty insurance market

The numbers are in, and it looks like the insured came out ahead of the insurers for property casualty insurance in 2016. According to a report by A.M Best, property casualty insurance took its first loss in three years, at a net estimated total of  $1.7 billion.

Darkest before the dawn

"The bad news for all parties involved is the current volatility of risk."

While the report chocks the loss up to several factors, including heightened competition pushing down rates, the most substantial problem is increased risk exposure – specifically, due to catastrophic events and certain weather conditions. 

"Direct insured property losses from catastrophes striking the United States totaled $17.4 billion in nine-months 2016, up from $13.1 billion a year earlier and above the $15.9 billion average nine-months direct catastrophe losses for the past ten years," read an ISO press release.

Based on recent events, it's doubtful the last few months would provide any measure of reprieve for insurers. In November an 18,000-acre wildfire befell Sevier County, Tennessee. This catastrophe single-handedly resulted in "$1 billion in combined residential and commercial property losses." 

Commercial auto also took a loss, but for very different reasons, namely, "distracted driving, increased miles driven and vehicles on the road due to lower gasoline prices, higher repair costs, and increased severity of liability claims."

The bad news for all parties involved is the volatility of risk at the moment, particularly where weather-induced loss is concerned.

The silver lining

"The good news is that the space currently has a strong capital base."

The good news for insurers, and to an extent the insured, however, is that the space currently has a strong capital base at $165 billion in excess capital, which according to a report by Barclays research is approximately 25 percent over-capitalization. 

What's more, A.M Best predicted that the net total of written premiums will see increases of 2.7 percent in 2016 and 2.5 percent in 2017. This is less than 2013, 2014 and 2015 which respectively saw net increases of 4.4 percent, 4.3 percent and 3.3 percent. But these gains are expected to contribute to an already existing surplus all the same.

Furthermore, they will likely be offset, at least to some degree, by new opportunities in commercial transportation insurance, which will like see an increase in underwriting of about 3.5 percent. In large part, this will be the result of technological innovations, including autonomous functions in vehicles, which could help commercial drivers reduce fatigue and curb the number the overall number of accidents. 

"From a commercial aviation perspective, pilots take care of takeoffs and landings, and everything else is automated," Jay Gelb, managing director at Barclays, said at a recent panel discussion in New York. "It feels like modes of transportation on the ground need to catch up to that."

And catching up they are. In the fall of 2016, the first delivery by autonomous semi-truck was safely completed. Innovation in commercial transportation is likely to continue this year, which could have a profound impact on drivers' safety, and subsequently, auto insurance as a whole.