The P&C Marketplace: What Lies Ahead in 2021?

With everything from catastrophic wildfires and floods to a tumultuous election and an unrelenting global pandemic, to say that this year has been tough on the insurance industry would be an understatement. And as we approach the new year, analysts suggest that 2021 might usher in some of the hardest insurance and reinsurance market conditions the industry has experienced in a long time.

COVID-19 and a hard market climate

According to Willis Towers Watson PLC’s 2020 Insurance Marketplace Realities report, COVID-19 has been a key catalyst for intensifying the hard market momentum, resulting in substantial earnings losses for insurers across key business lines. To date, current estimates for insurable losses due to the pandemic could top the $80 billion mark. In addition, issues surrounding uninsurable pandemic-related losses, such as those related to business income, mean the industry will also be grappling with reputational recovery as debates over the interpretation of contract language result in costly lawsuits. Today, the pandemic and economic downturn will likely extend the hard market well into 2021 as insurers’ losses materialize and their investment income declines. However, experts in the WTW report note that the full impact of COVID-19 remains to be seen. 

Multiple business lines being impacted

Property damage losses — due to changes in our climate as well as COVID-19 — has also increased the severity of liability losses in nearly every line of business. This year’s catastrophic losses mean that property insurers are likely to impose steep rate hikes as underwriters meticulously review exposures and pull back on coverage terms. According to WTW, catastrophe-exposed insureds with losses could see 30% or higher rate increases. In commercial liability, loss trends have also negatively impacted profitability with a projected possible increase of 40% in umbrella/excess insurance. On a more positive note, commercial auto rates will likely remain stable in 2021, as will workers’ compensation. In fact, WC rates may fluctuate up or down by only 2%. 

At the start of this year, management liability lines such as directors and officers liability experienced a whopping rate increase of 44% in the first quarter of 2020. According to an A.M. Best Market Segment Report, this rate is likely to jump even higher in 2021 with rising litigation and D&O claims being brought against executives targeted for decisions they made that are related to the pandemic. As an insurance professional, expect underwriters to reassess their risk selection and make adjustments to rates as more class action and event-driven litigation lawsuits are filed.

Insurance brokers with businesses that require pollution policies are also likely to face changes in rates and coverages. According to WTW, some policies will continue to offer coverage for bacteria and/or viruses, but that may only apply to disinfection/cleanup costs as most environmental policies include a bodily injury or human-to-human contact exclusion.

Moving forward

According to the WTW report, the rate increases we are currently experiencing for most lines of business may not go any higher than they already have over the past few months; however, changes in the market and increased rate pressure will continue to build as losses materialize and investment income declines. As an insurance professional, these market changes and challenges mean that you’ll have to work harder to secure new accounts and to retain existing policies. This includes starting the renewal process early and engaging with underwriters and carriers when it comes to policy negotiations to make smart decisions based on risk tolerance and market conditions.

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