Resilience amid disruption
If you’re looking for precedents for what’s facing our world and our industry today, you have to go back decades. It’s been over half a century since large-scale armed conflict broke out in Europe. It’s been decades since inflation hit levels we’re seeing now. It’s been over a century since the world faced a deadly pandemic, an ordeal we all hope is in its last significant chapters. In short, you have to go back a long way to find a moment with commensurate levels of disruption.
To put it in perspective, 2021 brought over $100 billion in cat losses.
As crisis in Ukraine continues, our first thought is about the resulting humanitarian crisis. With civilians suffering, the number of refugees swelling, and the hopes of a quick negotiated peace disappearing, our hearts go out to all those impacted by this tragic turn of events. Our second thought is about how we help our clients manage their personnel, investments, operations and businesses in this region. The global economic impact of the crisis and the sanctions against Russia is still a big unknown. In terms of insured losses stemming from the crisis, we estimate now that P&C insurers could be looking at something close to $15 billion. That’s a big number, but to put it in perspective, 2021 brought over $130 billion in insured catastrophic losses.
Turning to inflation and the overall prospects for the North American economy, there are several factors at play. Some indications point to a leveling of inflation, but common household costs keep climbing – just ask anyone filling up their car at a gas station. Meanwhile, the future of interest rates adds to the uncertainty. The Fed is raising rates, as national economic attention moves from the pandemic to rising prices, but how fast and how far rates will go up remains to be seen. Other indicators give cause for concern. Home mortgage application recently fell to their lowest point in two years. The overheated home real estate market that took hold in the pandemic may be cooling off, and perhaps other parts of the economy will pull back with it.
These broad economic trends of course impact the P&C industry, and for more detail on how all that might play out, we include the article, Inflation, investment returns and new upward pressure on insurance rates from some of our industry analysts. But in the bigger picture we’re happy to offer a bright spot in this otherwise dark moment in history. By several key measures, the insurance industry is in a better position than ever. Policyholder surplus has surpassed a rather astonishing one trillion dollars. Net income is at unprecedented levels. Return on equity (ROE) for insurers is also up significantly. The industry is more than ready to handle the $15 billion in losses the Ukraine crisis could yield.
For buyers, the marketplace still has its challenges, especially for less attractive risks. Rates are still going up in most lines, as reported below. But in most lines, increases continue to decelerate, and the market is stabilizing. The solid foundation for insurers should ultimately bode well for insureds.
Disruption and uncertainty are the watch words of the day. But in our world, there’s another watch word: resilience.
Of course, much could change in the next six to 12 months. Disruption and uncertainty are the watch words of the day. But in our world, there’s another watch word: resilience. In fact, that summarizes what we do for our clients: offer the perspective to respond to uncertainty, disruption and risk and help them keep moving toward resilience.
The most eye-catching story when it comes to insurance rates remains with cyber. While the hard market gradually loosens its grip, cyber rates continue to spike — and spike higher. Last fall we predicted increases of 50% to 150%. Now we are forecasting 100% to 200%. Outside of cyber, conditions are slowly improving for commercial insurance buyers in North America. Increases are still the norm, but the deceleration of those increases is now at the point where a fair number of insureds can expect single-digit increases or even flat renewals for the first time in several annual cycles — as long as they can present a compelling risk picture to the marketplace.
We are, of course, a long way from a soft market. This issue marks the fifth in a row where the number of lines predicting rate decreases has come in at zero. Experts in 26 of our now 33 lines of coverage (we added architects and engineers this issue) are predicting that most buyers will face increases. But even here there are some breaks in the clouds: eight of those lines put the bottom end of their rate prediction at flat increases. And in 13 lines, half of the 26, the increases are forecast to be smaller.
Here are highlights from our spring 2022 edition:
In short, buyers will still be paying more for their insurance in most cases. But in most lines, with the notable exception of cyber, improvement is expected to continue through 2022 — unless inflation and/or the crisis in Ukraine end up turning the direction of the marketplace.
| IMR issue | Decreases | Increases | Mix/flat |
|---|---|---|---|
| 2022 spring update | 0 | 26 | 7 |
| 2022 | 0 | 24 | 8 |
| 2021 spring update | 0 | 30 | 1 |
| 2021 | 0 | 29 | 1 |
| 2020 spring update | 0 | 23 | 5 |
| 2020 | 2 | 20 | 5 |
| 2019 spring update | 2 | 14 | 9 |
| 2019 | 2 | 14 | 9 |
| 2018 spring update | 2 | 10 | 10 |
| 2018 | 7 | 7 | 9 |
| 2017 spring update | 10 | 6 | 7 |
| 2017 | 10 | 6 | 7 |
| 2016 spring update | 9 | 8 | 5 |
*The 2022 spring update includes architects and engineers (A&E) for the first time. The 2022 edition includes middle market as a separate line of business. The 2021 spring update figures include marine hull/liability and marine cargo as separate lines. The 2021 figures include life sciences and alternative risk transfer predictions for the first time. The 2020 spring update figures reflect the addition of managed care errors & omissions as a separate line of business. The 2020 figures reflect the addition of personal lines and financial institutions as separate entries. The 2019 figures reflect the addition of marine, cargo and senior living/long-term care as separate lines of business. The 2018 spring update figures reflect the absence of marine in that issue; the 2017 figures reflect the addition of international coverage as a separate line, and the 2018 figures reflect the addition of product recall and the subtraction of employee benefits, which are no longer covered in this report. Casualty lines are discussed in one combined report but are included in this table as separate items (GL, umbrella/excess, auto and workers compensation).
For more insight on how you can prepare for a challenging marketplace, contact your local WTW representative.
Increases in premiums have moderated slightly, particularly for insureds who saw double-digit increases last year, but class action retentions remain high, with continued upward pressure.
Rate increases continue to decelerate, but the current inflationary spike in insurable values will sustain premium updraft.
The primary commercial liability marketplace remains stable, with workers compensation continuing to be the most favorable line of coverage for buyers.
Despite outside pressures from related insurance markets and a complex global landscape, the international casualty marketplace remains relatively stable.
The middle market segment is starting to stabilize as many clients have already faced market corrections in recent cycles.
As cyber markets continue to limit their exposure, buyers should be prepared to face dramatic premium increases or non-renewals if they are unable to demonstrate certain minimum-security standards.
Increases in rates and retentions have moderated significantly since the peak of the hard market. New capacity continues to drive more competitive market dynamics.
While the employment practices liability (EPL) rate environment is slightly improving, we expect COVID-19 employment-related litigation to keep increasing.
London markets are requiring cyber exclusions or endorsements on many professional liability policies to clarify coverage for silent cyber exposure.
Crime insurers are clinging to the hard market wave and are looking to capture rate increases where possible.
Increases in premiums have moderated slightly, particularly for insureds who saw double-digit increases last year, but class action retentions remain high, with continued upward pressure.
Rate increases will continue to abate with further market stabilization, increased competition and a general sense from insurers that portfolios are in a more sustainable place.
Rate increases continue to decelerate with more capacity entering the marketplace and new insurers seeking their share of the inflated premium base created over the past couple years, while incumbent insurers seek to maintain, or in many cases, increase their market share.
Parametric and structured solutions continue to be the focus of the ART market in 2022.
While the A&E market has remained fairly insulated from the dramatic rate increases and constrictions in capacity in the broader P&C marketplace, we have seen considerable changes from one of the leading A&E PL carriers.
Interest in traditional property and casualty captive programs typically jumps during hard market cycles, but additional consideration is being given to emerging risks and risks not previously managed through captives.
With insurance rates and interest rates highly (and inversely) correlated, we expect to find further market relief in 2022 as interest rates are expected to rise.
Positive factors continue to limit the hardening market dynamic in upstream and downstream energy.
The 2022 environmental marketplace is showing signs of growth even as adverse underlying market conditions the uncertainty of emerging exposures would suggest otherwise.
Healthcare professional liability (HPL) and general liability (GL) rates and terms and conditions have stabilized, but the market is closely watching some key global trends.
While the prevalence of cyber exclusions will send insureds looking for other solutions to cyber extortion risk, kidnap and ransom products are being increasingly sought out for active assailant risk cover.
In the short term, insureds should expect mid-single-digit rate increases; in the longer term, the risk landscape for the industry is likely to evolve as courts reopen, and opioid cases result in more insurance carrier payouts.
E&O, D&O and cyber market conditions for managed care organizations (MCOs) remain hard, especially the cyber market, but E&O and D&O are beginning to stabilize.
The hard market continues; however, renewed competition and enhanced growth targets in the marketplace have moderated upward rate movement in 2022.
The marine market remains firm, with underwriters still seeking increases on clean business, while mandating cyber and communicable disease exclusions. Marine underwriters are becoming less willing to provide excess coverage over non-marine exposures.
Massive rate increases in cat-prone areas coupled with inflationary pressures highlight a persistent hard market in personal lines. A recent pullback by several carriers in California and Florida has exasperated insurance buyers in an already capital-starved industry segment.
Against a backdrop of the first full invasion of one European country by another since World War II, political instability has continued to escalate in many countries around the world, and multinational corporations will need to navigate social unrest and political volatility.
The FDA is ramping up its use of technology relative to food safety, since the adaption of the Reportable Food Registry, which allows companies to self-report potential contaminated foods.
Rate increases are stabilizing, and the emergence of new capacity will continue to drive competition.
Companies will continue to face labor shortages and supply chain instability, which will require operations to be nimble and flexible to reduce the impact on both top- and bottom-line results.
Rates continue to edge upward along with the threat of terrorism, sabotage and political violence on several fronts.
Insurers are anticipating higher claim activity for 2022. Whether this turns into a tsunami wave remains to be seen, but past-due filings have increased significantly, and insolvencies in certain geographies are on the rise.
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 conflict. 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 conflict. 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 conflict 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 |
|---|---|---|
| Insurance Marketplace Realities 2022 Spring Update | 5.7 MB |
