Q3 2023 update
We have seen consistent themes within the global insurance marketplace thus far in 2023. As we enter the last quarter, we see less volatility and unpredictability and in many areas rate increases are finally easing after 5 years of a continuous hard market. Most regions continue to experience this stabilization with flat or single to low double-digit rate increases. As we have observed improved pricing conditions, coverage, and capacity for most commercial lines of business, we have seen the exceptions for Natural Catastrophe (Nat Cat) exposed projects and projects/risks and renewable programs with poor claims experience, lack of robust risk management plans and prescriptive formal loss mitigation protocols.
These projects still experience rate increases in the double digits and sometimes, more importantly, see capacity becoming less available. Challenges are still notable globally in professional indemnity (PI) project specific professional liability less on annual programs, decennial, inherent defect liability (IDI) in Europe and auto in the U.S., with continued limited capacity, increases in rates and deductibles in most type of projects where self-retentions are becoming more common particularly on excess layers.
With re-entering markets, new players and access to ample capacity from local, London and other international markets overall capacity remains robust, and we are starting to experience healthy competitive tension amongst insurers leading to positive outcomes for our clients. Local insurers are focusing most of their appetite and efforts in accommodating competitive terms for small and medium sized projects.
We are also starting to experience gradual increases in line sizes, with some traditional follow markets seemingly losing their conservative approaches and attempting to lead some of the smaller to medium size risks. This should improve the competitiveness that we had lost in the past few years, but this is still not consistent along all regions. On large and complex projects, insurers are still reluctant to lead and deploy full capacity in more players and costly reinsurance is needed in some cases to complete placements when there is unwillingness to accept primary or lead terms therefore imposing blended terms and conditions. This emphasises our familiar refrain on the importance of quality risk presentation and considered program structuring. Insurers remain extremely cautious and conservative with clients/projects that are exposed to higher Nat Cat perils but are also focusing on other major perils such as water damage, flood, and wildfires where they are increasing excesses, imposing sub-limits and restricting cover and demanding a clear hurricane preparedness plan.
Everyone is closely monitoring the 2023 hurricane season which at the date of this edition has seen few named storms, but we are still early in the season! The industry saw the impact of late season named storms in 2022 that set a negative course for the reinsurance markets that subsequently impacted worldwide Nat Cat pricing and appetite even in non-damaged areas and loss free clients. Most insurers are focusing on improving profitability and taking a more technical "portfolio view" approach to underwriting, considering their accumulation and reservation of capacity for group clients or on annual/renewable programs providing better solutions in support of long-term partnerships and closeness and familiarity with risk. At the same time, insurers are targeting growth, and most are investing in new hires and opening hubs in additional locations with underwriters that hold notable technical expertise in sectors such as infrastructure, energy (particularly in renewables) and the utilities sectors which remain a major driver of overall global construction output and investment.
Just as described by our leaders on the activity outlook within their regions, public sector spending remains a key driver in the construction industry with investment programs in the U.S., Europe, and China well underway. According to Global Data[1], overall global infrastructure construction output will grow at an annual average rate of 6.3% in 2023 to 2027, while the energy and utilities sector will expand by an annual average rate of 6.4%. Some projects although nearly recovered from the impact of COVID-19, are still experiencing delays in some regions like Latin America influenced by election processes, politically driven uncertainties and social unrest resulting in reduced confidence of international investors and funding.
There are some consistent and specific insights for all geographies that can be garnered by the commentary provided in this document.
