Single-digit rate increases are expected in 2024, similar to the ones seen in 2023, according to Woodruff Sawyer’s recently published P&C Looking Ahead Guide.
Despite economic and social inflation continuing to contribute to premium increases in the P&C insurance market, and rising reinsurance costs due to severe weather events that have led to higher property costs, analysts do not expect significant rate increases next year.
According to Carolyn Polikoff, Woodruff Sawyer’s Commercial Lines President, whether this trend continues depends on three factors that are impacting P&C premiums: inflation, more frequent and severe catastrophic losses, and reinsurance costs.
She explains: “Inflation has the strongest impact on the property and auto markets. Increasing costs for materials, parts and labour affect loss costs leading to ever higher insurance rate requirements.
“Counterbalance to this challenge is that inflation leads to higher interest rates on bottom portfolios, which is where most insurers invest their premiums. The combination of decelerating inflation and higher Investment Portfolio yield will improve insurer results, which should result in more favourable premiums, but that will likely not materialise until later in 2024.”
The report also notes that the frequency and severity of catastrophic losses is the most unpredictable factor impacting P&C premiums.
“The challenge for insurers is that catastrophic losses are impacting 2023 profitability and this has been a mild Atlantic hair season,” Polikoff adds. “ Expect insurers to place greater scrutiny on resilient building materials and construction practices. If these levels of catastrophic losses persist buyers should not expect significant decreases in premiums particularly in property any time soon.”
Reinsurers have responded to catastrophic events by increasing premiums, adding more restrictive terms and conditions, and requiring insurers to retain more catastrophic loss, experts highlight.
According to Polikoff, based on the analysis of these three factors impacting commercial P&C rates, insurance buyers could expect some premium relief but likely not until 2025.
Woodruff Sawyer’s analysts add: At the same time, the outlook for casualty in 2024 remains challenging. The hard market for primary liability is back due to litigation activity, backed by an increasingly aggressive plaintiffs’ bar.
“By contrast, the workers’ compensation (WC) trend noted in 2023’s Guide, holds the greatest potential for rate reductions. Given the challenges on primary and umbrella liability renewals, it’s critical that insurance buyers seek opportunities to leverage their WC programs to push insurers to provide optimal pricing for holistic casualty programs.”
