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Survey Report

Insurance Marketplace Realities 2023 Spring Update

Signs of cautious optimism in the insurance market

April 28, 2023

Rate predictions, forecasts and market insights for 30+ lines of insurance across North America.
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Searching for an elegant way to summarize the trajectory of the insurance industry over the last quarter has been a somewhat frustrating effort, so I will settle, instead, for some very practical language. It’s been a mixed bag.

Big news in the first quarter of 2023 was the failure of Silicon Valley Bank (SVB) in early March and the demise of several other major global financial institutions. At the Zywave Advisen Casualty Conference a few days after SVB, I sat with Russ Johnston, president of Nationwide Commercial Lines, on a View From the Top panel where he described our economy as being in the longest telegraphed recession in history. While perhaps said in jest, the statement certainly feels directionally accurate. The interest rate environment has impacted all and has far-reaching implications in a cash-heavy industry like insurance.

That said, the financial markets remain strong, and unemployment is still low. While what 2023 will bring to our economy remains predictably uncertain, our insurance market is, for the most part, telegraphing positive signs for our buyers.

Leading the way is directors & officers insurance. The strong financial market in the last few years has mitigated claims activity, and insurance carriers are aggressively pursuing market share, which is helping drive down pricing at rates unseen in more than a decade. Even the cyber marketplace has new capacity pursuing growth, and while just a short period ago one could expect 50% (or more) rate increases on their programs, we’re now seeing those same programs renew with flat rates. Related, our experts have seen an uptick in ransomware activity in the last month, and should that trend continue, the market could be quick to respond.

The property and casualty market, however, appears to be in a state of unsettled disagreement, as it continues to be a tale of haves and have-nots.

Starting with the “have-nots,” it is a list of one – property insurance – and what they don’t have is CAT capacity. As the industry ushered in the new year all eyes were on January 1 property reinsurance renewals. While Hurricane Ian’s recorded record high $68 billion in insured losses had minimal impact on the commercial retail insurance market, it did have a profound impact on the reinsurers. Beginning in October reinsurers proclaimed a hard market, and January 1 arrived with higher premiums, bigger retentions and limited capacity for CAT coverage. This position has drawn the retail property market into a hard market, and many CAT-exposed risks are finding it difficult to fill out their programs. There are signs that reinsurance capacity may be more abundant come July, which would help ease the voracity of the hard property market.

On the flip side, one would have to go back to 2018 to see casualty capacity at levels higher than today, though deployment of that capacity has changed. Carriers are successfully ventilating their limits, and perhaps this strategy, along with some regulatory reform (e.g., Florida HB 837), could be enough to support long-term stability for this line.

So many ups and downs impacting the industry — you can understand my initial struggle in finding the right words to describe our current position. At the end of the day, we find ourselves in a cautiously optimistic “wait and see” position relative to several factors that can significantly influence outcomes for our industry. But while we’re waiting, let’s enjoy the positive trends that are forming outside of property insurance and make the most of the favorable conditions while we can.

Let’s also not forget that we’ve been through all this before. WTW has been helping clients work through difficult and uncertain times for decades, and we bring perspective that will help collectively move us through the challenges of today toward a brighter tomorrow.

Here are some highlights from our spring 2023 predictions:

General liability

  • Rate prediction: -3 % to +5%
  • Liberal class action certification & a highly organized plaintiffs’ bar
  • Desensitized jury pools & uncertainty around litigation in post-pandemic world
  • Those with exposures materially impacted by inflation may find more flexible rate outcomes

Automobile liability

  • Rate prediction: +5% to +10%
  • 2021 AL segment combined ratio is estimated at 101.3
  • NHTSA puts the fatality rate for 2021 at 42,915 up 10.5% from 38,829 in 2020
  • Large auto verdicts: 300% increase over seven years in trucking claims
  • Distracted driving

Workers’ compensation

  • Rate prediction: -5% to +2%
  • Profitable combined ratio for eight years straight
  • Opioid addiction
  • Aging workforce
  • Medical wage inflation
  • Medical technology advancements increasing treatment costs to reducing mortality

Umbrella liability

  • Rate prediction: High hazard/challenged class: Flat to +15%; Low/moderate hazard: Flat to +7.5%
  • After the peak in 2020/21, pricing adequacy has attracted greater global capacity
  • Risk-specific (two-tiered) underwriting remains, with high hazard risks or lower attachment points yielding worse outcomes
  • Uptick in frequency of punitive awards

Excess liability

  • Rate prediction: High hazard/challenged class: Flat to +5%; Low/moderate hazard: -5 to +5%
  • Even with improving capacity, the industry still faces the impact of nuclear verdicts, catastrophic liability losses and the expansion of litigation funding
  • A return at looking at pricing rate relativity between layers has emerged.

Cyber

  • Rate prediction: Flat to 10%
  • Market stabilization is continuing in 2023. This is largely due to fewer companies paying ransoms, a reduction in overall cyber claim activity, and improved controls by insureds.

D&O

  • Rate prediction: Public company – primary: -10% to flat%; Public company - excess: -10% to -15%; Private, not for profit – overall: -15% to -10%
  • Abundance of capacity and a stabilized securities litigation environment continue to drive competitive market dynamics.
  • Broader market conditions have improved since the peak of the hard market in Q3 2020.
  • Moderation has been significant and is expected to continue through the remainder of 2023.

Terrorism and political violence

  • Rate prediction: Terrorism and sabotage: +15% to +40%; Political violence: +25% to +45%
  • Current political/economic conditions and conflicts around the globe are helping drive up pricing for terrorism and political violence insurance.
  • The crisis in Ukraine, the latest and most significant potential loss to the terrorism and political violence to the terrorism and political violence market in years, has ushered in changes mandated by treaty reinsurers.
  • The deployment of captive insurance vehicles continues to provide access to otherwise unavailable or uncompetitive capacity for terrorism risk.

Surety

  • Rate prediction: Flat
  • 2023 will be a challenging year for the surety industry, as the global economic growth slows down due to high inflation and tightening financial conditions,
  • The collapse of Silicon Valley Bank (SVB) may have a global ripple effect.
  • The talent shortage in surety lingers; however, it is driving hiring and training not experienced in the industry for decades.

Property

  • Rate prediction: Challenged occupancies: +25% to +40%; Non-challenged occupancies: +10% to +20%
  • Pressure to obtain higher returns for deployment of catastrophe capacity/aggregate will drive premium increases for insureds while inflationary pressure, reinsurance optimization and persistent scrutiny on valuation of assets remain.

For more insight on how you can prepare for a challenging marketplace, contact your local WTW representative.


Major product lines


  1. Property

    Pressure to obtain higher returns for deployment of catastrophe capacity/aggregate will drive premium increases for insureds while inflationary pressure, reinsurance optimization and persistent scrutiny on valuation of assets remain.


  2. Domestic casualty

    Workers compensation continues to provide underwriting profit, maintaining a steady primary casualty marketplace.


  3. International casualty

    The international casualty marketplace remains a steady environment, with ample competition available for multinational insureds to find adequate capacity for risk transfer.


  4. Middle market

    While we still foresee a more promising casualty landscape, we entered 2023 with significant headwinds in the property market given unprecedented CAT events, and we expect this trend to persist through the year.


  5. Canada

    The Canadian casualty marketplace has entered into a state of growing stability on rate expectation. For property, additional capacity is driving competition and creating rate stability.


Professional liability lines


  1. Cyber risk

    Market stabilization is continuing in 2023. This is largely due to fewer companies paying ransoms, a reduction in overall cyber claim activity, and improved controls by insureds.


  2. Directors & officers liability

    Abundance of capacity and a stabilized securities litigation environment continue to drive competitive market dynamics.


  3. Employment practices liability

    The EPL market continues to stabilize largely due to competition with markets eager to write new business and maintain their renewals.


  4. Errors & omissions

    As insurers continue to correct rates to better align with long-term loss experience trends, legacy markets’ pricing has been impacted, and new carriers are being attracted to the E&O space


  5. Fidelity/crime

    Although premiums have historically been inconsequential compared to other financial and executive (FINEX) lines, the loss trends are nothing to bat an eye at.


  6. Fiduciary

    Despite conflicting positive and negative risk developments and some carriers remaining wary, a few carriers with increased appetites are leading to improved market conditions.


  7. Financial institutions - FINEX

    Competition among insurers persists across all lines for financial institutions (FIs) resulting in rate stabilization, and for certain classes of business, rate decreases.


Specialty lines and solutions


  1. Aerospace

    Insurers continue to take a measured wait-and-see approach to the impact of Russia’s confiscation of aircraft, and we don’t expect to see this manifest until some time in 2024.


  2. Alternative risk transfer solutions (ART)

    Pricing in the ART market is generally stable due to embedded risk financing. Structured and parametric solutions will drive the ART market in 2023.


  3. Architects and engineers

    Adverse severity claim trends reported by most professional liability (PL) carriers continue without any signs of improvement. Social inflation is being cited as the primary driver.


  4. Captive insurance

    While there is now less consistency in insurance rate movements than in the previous period, some difficult areas remain.


  5. Construction

    Although rate decreases on renewals are still rare, we are experiencing positive trends in renewal pricing for contractors that we expect to persist throughout 2023.


  6. Energy

    There has been a re-hardening for downstream energy and current hardening dynamic cannot be sustained indefinitely for upstream energy.


  7. Environmental

    2023 marketplace should experience steady yet cautious growth while continuing to face the headwinds of increased claim frequency and severity, regulatory and economic uncertainty, and emerging exposures.


  8. Healthcare professional liability

    While overall rate increases appear to be stabilizing, decreases are not expected any time soon.


  9. Special contingency risks: Kidnap and ransom

    The special risks insurance markets have almost uniformly removed all cyber extortion coverage from their policy forms.


  10. Life sciences

    Product and professional liability rate predictions remain in the mid-single digits, largely due to inflationary factors and nuclear verdicts, with a focus on maintaining favorable coverage terms and conditions.


  11. Managed care D&O and E&O

    E&O and D&O conditions for managed care organizations (MCOs) have stabilized, but systemic risks and concern over mass tort, antitrust and class action claims continue to plague MCOs.


  12. Marine cargo

    As we head into 2023, marine insurers continue to push rate; however, not to the extent that was seen between 2018 to 2021.


  13. Marine hull and liability

    The marine market remains firm with demand for price adjustments across the board — higher end of range for challenging risk exposures.


  14. Personal lines

    The personal lines insurance market is experiencing a persistently hard market that may extend for several more years.


  15. Political risk

    February 24 marked the one-year anniversary of the start of the Ukraine/Russia conflict. In response, C-suites at multinationals are reviewing their rest-of-world portfolios and increasingly look to transfer such risks, while the market has hardened considerably.


  16. Product recall

    The large-scale losses have come to fruition; thus, renewals with incumbents have become much more granular when it comes to manufacturing facilities and supplier aggregation.


  17. Senior living and long-term care

    Property renewals, heavily impacted by catastrophic and non-catastrophic loss experience as well as a very difficult treaty reinsurance renewal on January 1, will be most challenging for owners and operators.


  18. Surety

    Surety companies continue to be profitable, and we continue to have adequate capacity to meet our clients’ needs.


  19. Terrorism and political violence

    Current political/economic conditions and conflicts around the globe are helping drive up pricing for political violence and terrorism insurance.


  20. Trade credit

    All economic signs point to deeper recession in the second half of 2023. Cash flow constraints and access to liquidity will lead to higher insolvencies, and this is expected to bleed into 2024.


Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for losses relating to the Ukraine crisis. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third-party sources we consider reliable; however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. The Ukraine crisis is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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Senior Editor, Insurance Marketplace Realities
Head of Broking, North America

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