In an ever-evolving insurance landscape, insureds are bracing themselves for continued challenges as they navigate a market grappling with increasing premiums, reinsurance optimization, and a persistent focus on asset valuation, WTW noted in its Insurance Marketplace Realities 2023 Spring Update.
The pressure to achieve higher returns for the deployment of catastrophe capacity and aggregates has resulted in premium hikes for policyholders. As the industry experiences a prolonged reinsurance treaty season, insurers are further exacerbating the prevailing hard market conditions.
The effects of reinsurance treaty renewal results are being keenly felt in the direct property marketplace, with every insured facing ongoing pressure on rates, values, and terms during the renewal process.
The overall risk profile of each insured, including factors such as catastrophe exposure, loss history, and non-catastrophe risks, will determine the overall impact on their coverage.
The beginning of the year witnessed double-digit increases in both rate and retention across insurers’ restructured treaty protection, causing significant delays in receiving terms for Q1 renewals. This delay is likely to have a similar effect on Q2 quotes, as insurers face a more condensed timeframe to provide quotes.
Insurers are grappling with the challenge of passing along the results of their treaty protection restructuring to individual insureds while simultaneously reviewing their strategies for 2023.
The current market dynamics have led to an influx of submissions, granting underwriters greater selectivity in choosing deals. Insurers are focusing on quality and using the hardening market to strengthen their existing portfolios before considering new business opportunities.
However, the increased workload and the need to provide multiple quote options have slowed down insurers’ response times, placing further strain on the renewal process.
To optimize their portfolios, insurers are taking steps to reduce their aggregate exposure to catastrophic perils while ensuring they receive adequate returns for their limited amount of aggregate capital.
As a result, clients with significant losses or extensive catastrophe exposure are likely to experience substantial retention and rate adjustments during their 2023 property renewals.
The ongoing expectation for 2023 is a continued reduction in capacity in high hazard Nat-Cat zones. Concerns loom over the limited availability of catastrophe risk capacity, with worries that it may be fully deployed by midyear, potentially leading to a shortage of coverage in the third and fourth quarters.
Shared and layered accounts are also facing challenges, as insurable values continue to impact attachment points, capacity, and costs. Larger excess layers are becoming more compressed to ensure completion, driving increased premiums into the lower layers.
In response to these market conditions, insureds have begun exploring alternative self-insuring options to reduce dependence on traditional insurance practices. They are also reevaluating their conservative risk management philosophies, opting to purchase less coverage than in previous years to strike a balance between cost efficiency and adequate protection.
