In a world of inflation, the hard market begins to ease
Since 2019, commercial insurance buyers in North America have been searching for a break in the clouds. The second half of 2022 has ushered in a new environment that provides a brighter picture, one with improved pricing conditions, coverage, and capacity for many commercial lines of business. This is not to suggest it is time to celebrate soft conditions, but it does mark demonstrable improvement in the market. That said, one of the lone holdouts for a hard market, commercial property, is facing material headwinds, and the industry as a whole must mind the upward pressure that several macro factors may have on rate.
The first of these factors is inflation in its many forms. The Consumer Price Index and slipping purchasing power may headline the news, but there’s also wage inflation, medical inflation, and, as anyone in the casualty world will tell you, social inflation. These factors are raising loss costs. On the property side, every buyer is challenged to accurately assess and present replacement cost values that go up as the cost of labor and materials goes up. Carriers, meanwhile, must recalibrate portfolios based on their growing potential exposure.
On the casualty side, nuclear verdicts fueled by social inflation continue to push tort costs and, subsequently, claims costs higher. But insurers have been dealing with these forces for some time now, and pricing adequacy is beginning to turn the market for buyers—rate reductions are possible and even approaching double digits in the best scenarios.
Property insurers have rekindled their tenacity to drive rate. This retrenchment is not solely driven by inflation but also by the continuing procession of loss events pushed by the extremes of weather. This brings us to the second macro factor we are focused on: Hurricane Ian.
In addition to the personal tragedies that resulted from the punishing landfall, this was a big, albeit unique, loss event. While ultimate economic costs will take some time to play out, there is no doubt that Ian losses lean heavier on the personal lines side than the commercial side. However, the commercial response has been swift and dramatic. With retail insurers making immediate adjustments to catastrophe capacity and rate, reinsurers are telegraphing grim renewal conditions for 2023, which would compound the rate and structural pressures we experience today.
Whatever the fallout from the 2022 hurricane season, natural catastrophes loom large for our industry. Wildfire, not high on our lists a ten years ago, remains on our lists now. Extreme weather of all kinds strikes in places where we haven’t seen it before, and places we’ve seen it all too often.
Here are some highlights from our 2023 predictions:
So, while the grip of the hard market is loosening, buyers are not yet free from it. There are opportunities in the marketplace, which puts an increasing emphasis on the importance of analyzing and understanding your risks and being prepared to present them clearly and effectively to underwriters.
Use all the tools available to you, especially the analytic tools that steadily improve in their predictive value and ease of use. Work closely with your risk management partners — carriers and brokers — to make the most of the opportunities that do present themselves. Availing yourself of these resources will help make you and your organization all the more ready to face the ongoing challenges that lie ahead.
For more insight on how you can prepare for a challenging marketplace, contact your local WTW representative.
Premium increases for most insureds will be driven by inflationary construction costs, heightened reinsurance pressures and possible catastrophe capacity constriction.
Workers compensation continues to provide underwriting profit, maintaining a steady primary casualty marketplace.
The market for international casualty remains healthy and competitive, with ample capacity made available from carriers who continue to invest in tools and resources to deliver solutions to insureds.
The middle market segment continues to stabilize and, in some areas, has improved for buyers in capacity and rate.
An increased level of competition from cyber underwriters has led to more nominal rate increases when organizations can demonstrate good cyber security controls year over year.
Increased capacity from newer market entrants and an improved securities litigation environment continue to drive more competitive market dynamics.
While the EPL market is still seeing some rate increases, competition is keeping the increases stable/modest, unless there is significant loss history and/or significant change in exposure factors.
As insurers continue to correct rates to better align with long-term loss experience trends, the magnitude of the increases is decreasing at the primary layer level but not yet at the excess level.
In most instances, fidelity and crime underwriters have returned to pricing renewals based on changes in exposure year over year.
As the previously limited market for primary fiduciary shows some signs of expansion, we expect soon to see more flat renewals.
Competition among insurers has increased across all lines for financial institutions, resulting in a deceleration of rate increases and, in some coverages, rate decreases.
Except for war coverage, the market remains stable as insurers take a measured “wait and see” approach to the potential impact of Russia’s confiscation of aircraft.
Parametric and structured solutions continue to be the focus of the ART market in 2023.
While the overall A&E marketplace is relatively stable, most A&E professional liability carriers have reported an increase in severity of claims.
We are seeing additional consideration given to emerging risks and risks not previously financed through captives.
Certain high hazard exposures and contractors with challenging risk profiles will continue to experience rate increases, but the rate of these increases will be tempered as the market improves.
While there is a return to a more cautious underwriting climate in downstream energy, a major market bifurication has developed in upstream energy.
The 2023 environmental marketplace should experience steady yet cautious growth.
While overall rate increases appear to be stabilizing, decreases are not expected any time soon.
The special risks insurance markets have almost uniformly removed all cyber extortion coverage from their policy forms.
Life sciences product and E&O rates are stable as capacity remains high for products not in litigation or otherwise challenged classes.
E&O and D&O conditions for managed care organizations (MCOs) are stabilizing, but systemic risks and concerns over mass tort, antitrust and class action claims plague MCOs.
The hard market continues; however, renewed competition and enhanced growth targets in the marketplace have had moderated upward rate movement in 2022.
The marine market remains firm; however, underwriters are seeking smaller increases than in recent years.
Carriers remain focused on profitability over growth and have therefore firmed up their underwriting appetite and risk exposure.
The continuing reverberations of the crisis in Ukraine have drawn increased multinational corporation interest in learning about political risk insurance.
Catastrophic market-wide claims are currently being adjusted so, while the near view of the market is bullish, we foresee the market hardening once these losses are realized.
Emerging from the pandemic, challenges remain in senior living and long-term care with respect to coverage issues and insurance capacity.
Despite macro-economic challenges, we expect healthy construction activity and strong surety profitability to prevent hardening of the surety market.
Current political/economic conditions and conflicts around the globe are helping drive up pricing for political violence and terrorism insurance.
Insurers remain braced for higher claim activity. The combined stressors of the crisis in Ukraine, high inflation and looming recessionary environments have many trade credit insurance underwriters exercising caution.
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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.
| Title | File Type | File Size |
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| Insurance Marketplace Realities 2023 | 10.9 MB |
