The Hard Insurance Market: Where the Industry Is Today, and Where It’s Headed

At the end of 2021, the insurance industry had high hopes for a soft or a more moderate market shift as we moved into the new year. However, key economic issues, including inflation, investment returns, class action lawsuits, COVID-19 variants, the war in Ukraine, and rapidly evolving consumer product and purchase preferences have since undermined the industry’s outlook and continue to impact the property and casualty industry. As a result, experts believe that the hard market conditions we have experienced over the past few years are far from over.

So, where are we today? According to Willis Towers Watson’s (WTW) Insurance Marketplace Realities 2022 Spring Update, a soft market is a long way off, with 2022 being the fifth year in a row when no lines are expected to decrease. Here’s what the WTW market update revealed about certain lines for the remainder of Q2 and moving into the second half of the year:  

  • In general, property lines should remain flat — down from 2% to 10% for preferred risks. However, less-attractive risks are expected to increase upwards of 15%. Meanwhile, as rate increases in property lines continue to decelerate, the current inflationary spike in insurable values likely will increase premiums.
  • While employment practices liability rates have improved slightly, that scenario is likely to change as COVID-19 employment-related litigation increases.
  • Professional liability markets will increase requirements for cyber exclusions or endorsements. 
  • Cyber rates are forecast to spike a whopping 100% to 200% over last fall’s rates as cyber markets continue to limit their exposure. Buyers will face dramatic premium increases or non-renewals if they cannot demonstrate minimum security standards.
  • Liability increases are expected to take a slight dip of somewhere between 4% and 10%.
  • Excess liability has experienced a significant increase in minimum premiums and is driving higher rates for excess layers. Excess lines are predicted to increase 5% to 10% over the next several months.
  • While umbrella liability capacity has stabilized and a reduction in limits are less common, more challenging risk exposures could see a 15% to 25% increase in rates.
  • Directors and officers liability is expected to see a modest rate decrease, but only for preferred risks. New capacity continues to drive a more competitive market.
  • Fidelity, crime and energy coverages face the possibility of flat renewals over the next few months.
  • For terrorism and trade credit, predictions of small decreases have given way to predictions of flat renewals for trade credit and increases in double digits for many buyers of terrorism and political violence coverage.
  • Personal lines and life sciences will continue to face substantial increases.
  • Workers’ compensation will continue to be the most favorable line of coverage for buyers.

“In short, [consumers] 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.” Source: Willis Towers Watson.

The WTW update notes that while market conditions are slowly improving for commercial insurance buyers in the U.S., increases are still the norm. However, the industry is now seeing increases coming to the point where many insureds can expect only a single-digit increase and perhaps even flat renewals for the first time in several years if they don’t pose a high risk. 

Conclusion
As you can see, there are a number of factors that can impact insurance rates. As an agent, you can expect insurance program structures and pricing to continue to have an impact on your policyholders as carriers stringently manage capacity for new business and issue non-renewals for more challenging accounts — such as those with large losses and high-risk exposures. For this reason, now is a good time to communicate with your policyholders, keeping them informed about potential changes.  

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