WTW, a global advisory, broking and solutions company has released its latest Insurance Marketplace Realities (IMR) report, showing that most coverage lines continue to demonstrate a stabilizing market trend that began in early to mid-2022.
While a lot of coverage lines are demonstrating increases, analysts say they are more manageable than they were 6–12 months ago. The report shows the trend around softer renewal rates in some lines creates opportunities for buyers.
The report states that from a macroeconomic standpoint, markets are experiencing improving investment yields and surplus is growing in many areas, suggesting healthy markets. Meanwhile, inflation is at a 40+ year high causing the Federal Reserve to raise interest rates in an effort to tamper with inflation and help stabilize the economy.
Data shows the Q1 of 2023 showed GDP growth of 1.1% in the US, the factors playing a role in this commercial insurance industry having difficulties are climate-driven events, record inflation and high-interest rates.
Jon Drummond, the Head of Broking, North America, WTW, commented: “While the economy remains predictably uncertain, the softening of the market across many lines of business is creating opportunities for buyers. Those that are taking proactive positions and questioning the status quo are driving the best outcomes for their organizations.”
The report suggests that property losses in markets such as New Jersey have seen climate-driven events rarely, before including tornados and wildfires in recent months. States in the Northern Plains and Upper Midwest have also experienced record-breaking snowfall throughout the winter, which has led to floods, mudslides, and associated property damage from the melt and runoff as the weather warms up.
According to the Bureau of Labor Statistics, the positive side despite the failure of Silicon Valley Bank and a few smaller institutions, the health of global financial markets remains relatively healthy and the unemployment rate remains low at 3.5% this year. Although some companies have announced projected layoffs for the latter half of 2023, first-quarter corporate earnings are off to their best start in more than a decade, according to Bank of America and Fortune.
The report suggests that the significant weather-related losses, and a hard property reinsurance market, have driven property insurance rates higher by as much as 40%. On the high side from a year ago, property rates were experiencing jumps of 10–15% on average, with some situations maxing at 20–25% at most. However, property insurance rates will not be abating anytime soon due to macroeconomic factors and climate-driven losses.
Within the management liability commercial insurance market, Directors & Officers (D&O) liability rates have continued to decline. Six months ago, D&O rates were coming down by 5–7.5%, and on the high end were experiencing increases of 2.5%. Currently, buyers of D&O could see reductions as high as 30%, with the most challenging risks renewing near flat, WTW reported,
The Cyber market in late 2022, showcased the rate reductions of 5–10% while moving into 2023 these rates are signifying mostly flat renewals, with the most demanding risks prompting increases of nearly 10%.
In addition to the property market, another coverage line that is resisting the overall trend is Political Risk, driven by the ongoing Ukraine/Russia conflict, concerns over the tensions between Taiwan and Beijing and the military conflict in Sudan. Collectively, these conflicts and uncertainties have pushed Political Risk rates higher by as much as 45%.
