In 2020, the insurance industry experienced an upswing in the market cycle that created hard market conditions. As a result, insurance policy terms, limits and conditions became more restricted, while rates and premiums increased. This year, we will continue to experience a general hardening of the insurance market.
As a broker, the high demand for insurance and lower supply of available coverage can create a challenging retail environment. To best position yourself for successful insurance selling in this type of market, it’s important to know what you may be up against so you can plan accordingly. We’ve put together highlights of key issues that we are currently experiencing in the first quarter of 2021, and what you can likely expect moving forward.
According to Willis Towers Watson’s Insurance Marketplace Realities 2021 report, the industry will likely experience the following commercial lines pricing changes in 2021.
- Umbrella and excess lines are expected to increase by 30% for low/moderate hazard umbrellas and 150% for high hazard excess policies.
- All categories of directors and officers are expected to increase to double digits—some by as much as 70%.
- General liability rates this year are predicted to more than double, from 2.5% to 7.5% in 2020, to better than 15%.
- Worsening property rates are expected to increase 15% to 25%—up from 10% to 20% at the end of the second quarter of 2020.
- The impact of COVID-19 and another year of record breaking natural catastrophes in 2020 will likely compound existing hard market conditions and continue to be felt across almost every line of insurance, with no immediate end in sight.
- Based on current P&C trends, we anticipate that the hard market will continue to impact carrier results and profitability. As a result, brokers should anticipate writing capacity pull-back on many major lines that will lower supply, while increasing the cost of coverage. We expect the pandemic and pricing adjustments from a long sustained soft market to continue putting pressure on carrier profitability and results.
- Climate change is taking its toll on insurance companies as we experience disasters of greater magnitude. Many of these events were unexpected and unmodeled, meaning that current insurance rates and pricing didn’t anticipate such large economic losses. And even with events that were expected, there has been a steady increase in frequency year-after-year. Unfortunately, climate-related catastrophes across the globe—including hurricanes, derechos and wildfires—have put much stress on almost every bottom line. In fact, hurricanes were so frequent in 2020 that they ran through the traditional alphabetic names and started using the Greek alphabet for only the second time in history!
- Lloyd’s of London reported seeing their fourth straight year of poor underwriting results with a combined ratio over 100%—that’s 12 straight quarters of increasing rates. Because of this sustained unprofitability, it is likely that insurance rates will continue to rise for the foreseeable future.
- Carriers will continue to feel the pressure on rates as they attempt to offset large losses and poor underwriting results, along with the increasing challenge of securing investment income from stakeholders.
- In addition to rate increases, we will continue to see limit pullbacks and coverage changes. For example, umbrella carriers are significantly decreasing their writing capacity across all industries, especially on habitational and auto-heavy accounts. Primary drivers behind this decreased capacity include social inflation and nuclear verdicts, where juries are awarding 9 and 10-figure judgement awards on lawsuits that might otherwise normally see a 6 or 7-figure award. Deductibles and retentions are increasing as well.
- COVID-19 continues to put additional stress on carriers and their willingness to accept risks, which has further increased rates. Civil unrest and riots also remain a concern for carriers, as losses stemming from protests have impacted results.
In a hard market, it’s critical for brokers and risk managers to be proactive. For renewals, be sure to review and submit applications at least 90-days in advance of the policy expiration date. For new business, submit only complete ACORD forms and currently valued loss runs. At all times, strive to keep the lines of communication open with your underwriters and carriers, as they are tasked with making some tough decisions, and try to remain flexible when it comes to negotiating rates and terms.
The specialists at Benchmark Management Group, a division of Worldwide Facilities, are experts in the nuances and challenges brought about by this ever-changing market and are here to assist you in every way possible. Now’s the time to get your submissions to the top of the stack and put more new business on the books. For additional information, reach out to John Goolsby at (630) 796-9202 or firstname.lastname@example.org.