Jon Drummond, Head of Broking, North America at insurance broker WTW, has claimed that the “grip of the hard market is loosening” despite some upward pressures across lines.
Writing in the latest Marketplace Realities report from WTW, Drummond noted that the second half of 2022 has “ushered in a new environment that provides a brighter picture” for commercial insurance buyers in North America.
This “demonstrable improvement” includes more favourable pricing conditions, coverage, and capacity for many commercial lines of business, he said.
However, areas such as commercial property insurance continue to challenge buyers with hard conditions due to various headwinds, and the industry as a whole must still be cautious of further rate increases in response to several macro factors, the WTW exec warned.
Among the most prominent of these factors is inflation, including wage inflation, medical inflation, and social inflation, which are raising loss costs across the board.
On the property side, this means buyers are challenged to accurately assess and present replacement cost values that go up as the cost of labor and materials goes up, while for carriers, they must recalibrate portfolios based on their growing potential exposure.
And on the casualty side, social inflation continues to push tort costs and, subsequently, claims costs higher.
But Drummond notes: “insurers have been dealing with these forces for some time now, and pricing adequacy is beginning to turn the market for buyers—rate reductions are possible and even approaching double digits in the best scenarios.”
One area where rates obstinately continue to move upwards is in property lines, where momentum is not solely driven by inflation but also by the continuing procession of loss events pushed by the extremes of weather.
Drummond notes that the commercial response to Hurricane Ian in particular has been “swift and dramatic” with retail insurers making immediate adjustments to catastrophe capacity and rate, and reinsurers anticipating grim renewal conditions for 2023, which would compound rate and structural pressures.
“Whatever the fallout from the 2022 hurricane season, natural catastrophes loom large for our industry. Wildfire, not high on our lists a ten years ago, remains on our lists now. Extreme weather of all kinds strikes in places where we haven’t seen it before, and places we’ve seen it all too often,” Drummond concluded.
“So, while the grip of the hard market is loosening, buyers are not yet free from it. There are opportunities in the marketplace, which puts an increasing emphasis on the importance of analyzing and understanding your risks and being prepared to present them clearly and effectively to underwriters.”