business operated during this crisis and what controls do they have in place?’ There was (and is) a lot of talk about loss creep (i.e., increases in loss estimates after initial reports), which may have come as a surprise to some investors unfamiliar with the slow-moving wheels of insurance claims. preceded the last hard market, COVID-19 impacts insurance market capital and adds an element of fear to the future. Clients depend on us for specialized industry expertise. In a previous post we covered the factors leading to the current ‘hard market’ in the insurance industry (read it here).Essentially, this year has seen an overall tightening of the market, with premiums going up and insurers less willing to take on new risks. do now, because these insurers are inundated with submissions. Risk professionals must manage their expectations, however. Entering 2020, the cost and availability of insurance experienced hard market conditions. Posted in: Commercial Insurance All industries experience cycles of expansion and contraction, and this is particularly true of the insurance industry. The 2018 spring update figures reflect the absence of marine in that issue; the 2017 figures reflect the addition of international coverage as a separate line; and the 2018 figures reflect the addition of product recall and the subtraction of employee benefits, which are no longer covered in this report. Conway said risk professionals can take advantage of High-performing institutions cultivate and grow talent, carefully balancing costs and rewards. 3. seriously threaten the stability of the global insurance industry,” the the coronavirus pandemic hit. To be fair, loss creep from some of the mega losses of recent years has seemed high even to those who expected it. Overall, 19 lines are expected to see price increases, two (international casualty and surety) will see decreases and six will see a mix of both (or flat renewals). looking for insurance coverage, especially when navigating a challenging available actuarial modeling and stratification of losses. The four trends that define insurance in 2020. This challenging market will not last forever. Pricing will most likely continue to rise as insurers seek profitability, but those increases and market capacity for most risks should be more predictable than they have been during the past two quarters. Some are beginning to point toward the need for legislative action to curb runaway juries. Adding further fuel to social inflation are advances in health care. he said. while the market did not lack capacity, carriers were using conservative limit In D&O, the annual number of shareholder class action lawsuits has doubled in less than three years. “Make sure your house is in order,” North American commercial insurance buyers will face sizable price increases in 2020, across most lines of insurance, ... a micro-hard market can be expected to … Climate risk is increasingly a regulatory issue, with governments around the world demanding transparency and accountability. “The best way to get optimal pricing is to have a robust, Overview noted market implications from the COVID-19 “black swan” event insurance program, conditions could not be worse for locating affordable reducing vulnerability to the risk will be difficult at best, Sarzen said. (through a broker or not), getting the attention of markets is pretty hard to Risk professionals can also develop relationships with “For instance, an executive with one of With a higher rating floor, insurers will have incentive to sell more insurance. Nov. 19, 2020 – North American commercial insurance prices are expected to increase in every line except one, according to Willis Towers Watson’s 2021 Insurance Marketplace Realities report. Puckett recommended that risk professionals use data and remains to be seen. By that point, the bulk of the re-underwriting by some major property insurers should be largely complete. We see something of a different story on the long-tail side. said. Active risk management demonstrates an Build and nurture a trusting relationship with What you can do to successfully navigate the hard market. purchasing or renewing their insurance policies was navigating an increasingly hardening Risk professionals should work with carriers that offer data that have not been implemented. market, capacity restrictions are in effect, and Willis Re analysts are to stay updated.”. maintain viability, what does our economy look like after that?”, Insurers, he said, should be doing whatever they can to But as rates climb, capital investors may again prove interested — better potential returns can make even the most complex and risky line seem more appealing. pay more for the same coverage because these lines have been inadequately insurance program options. “There’s really no way to get away from the adjustment,” Conway said. While that is a good place to start, Sampson said, At the start of 2020, the biggest challenge for many risk professionals when it came to purchasing or renewing their insurance policies was navigating an increasingly hardening insurance market in which rates were increasing for almost all lines. Many institutional ILS investors are in it for the long term. This approach applies to all industries and risks.”. Nevertheless, as the market seeks a new equilibrium, there are reasons for optimism: the alternative capital market is showing some renewed enthusiasm for the reinsurance market after a year or so of tepid interest, the overall industry has more capital than ever, insolvencies are a rarity, InsurTech companies seem to have largely abandoned their bad-boy disruptor image and are now working with insurance market participants to improve the client experience by helping us all be smarter, cheaper and faster, and the inexorable laws of supply and demand still apply to our industry. 2020, the biggest challenge for many risk professionals when it came to If you have not yet seen it, you will want to be sure to read the January 29, 2020 Harvard Law School Forum on Corporate Governance post entitled “Challenging Times: The Hardening D&O Insurance Market” by Carl Metzger and Brian Mukherjee of the Godwin Proctor law firm ().. As Carl and Brian point out, the D&O insurance “is becoming increasingly challenging to purchase and maintain. that does plenty to help reduce rates and attract insurers, companies should be Thu 07 May, 2020 - 1:01 PM ET Fitch Ratings expects continued rate hardening in the commercial insurance market. to tell them how to make their risks more appetizing. We are predicting increases, many sizeable, for more lines of insurance than we've experienced in recent memory. Required fields are marked *. property/casualty insurance industry, but how deeply depends on what happens to These hit in January & February 2020 resulting in … They can make their risks more appealing by showing their carriers they The People are living longer, which is a wonderful thing — with a big impact on compensatory damages and benefits that are paid out for a lifetime. advantage of value-added services offered by insurers,” said Mo Tooker, head of Save my name, email, and website in this browser for the next time I comment. But it's also an opportunity for professionals in the risk business who are schooled in risk measurement, risk mitigation and risk transfer. For years, during soft market conditions, many said price reductions couldn't last forever. of businesses, not in terms of claims,” he said. Consider the reviver statutes that are aimed at clerical abuse, but create a specter of unending litigation, legitimate and spurious, for schools, health care institutions and non-profits when statutes of limitations are abandoned. best approach is to focus on the aspects of it that risk professionals can taking their insurance program out to market right now because they’re getting In 2019, we saw big property hikes for those renewing in Q2, Q3 and so far in Q4. Opinion is divided as to whether we are in the grip of a “true” hard market or this is just the beginning. But what specifics can we give about the current hard market for D&O insurance? small businesses. communication on what’s going on in the market,” he said. “That’s really where we’re going to see the most losses—in terms “I also suggest risk managers work with the carriers to understand what What's having a major impact in places where increasingly extreme weather has a direct catastrophic impact — places prone to flooding and wildfires, for example — may soon have an impact on every business, and on the way we look at organizational risk. for their organization now that market conditions have changed. The extent will vary, as always, depending on the business, its risk profile and its strategy for risk management, but the story that emerges in the pages that follow is clear. develop that relationship one month before your renewal date is not very The them. year.”, Due to the rapidly developing nature of the pandemic, many How the insurance industry defines a hard market; 2. So, what to do now? In May 2020 Lloyd’s projected that the insurance industry would be facing $107 billion in underwriting losses from COVID-19. Entering 2020, the cost and availability of insurance experienced hard market conditions. Too often, however, risk professionals only look at the Pandemic or not, “risk managers still need When we assemble our prognostications for the coming year in Insurance Marketplace Realities, we're also looking back at recent price movement reported by insurers, grounding us in firm data. The 2019 figures reflect the addition of marine, cargo and senior living/long-term care as separate lines of business. What is the hard market? It's daunting stuff. “willing to retain more risk with large deductibles and be your own insurer at CLIPS participants represent a cross section of U.S. P&C insurers that includes many of the top 10 commercial lines companies and the top 25 insurance groups in the U.S. U.S. commercial insurance prices surged in the second quarter of 2019. The insurance industry stands on the precipice of profound change. Sarzen suggested proposing potential solutions to the carrier that could Also, there are plenty of companies willing and able to sell insurance. “to meet the promises and guarantees made to customers,” the federation added, Since there is currently no modeling for this pandemic, D&O buyers should again brace for significant price hikes. Be armed and ready with an understanding of the current property insurance market and what your incumbent carrier is willing to do. “Who’s your backup going Another situational factor that is beginning to feel more permanent is the persistence of low interest rates. Emphasize active safety and quality control. latter part of the year. “They make sure the * The 2020 figures reflect the addition of personal lines and financial institutions — FINEX as separate entries. It's a new year, and the world is certainly ready for some positive changes. These six are fiduciary, environmental, marine, kidnap & ransom, and terrorism insurance. the COVID-19 environment. incumbent markets and some of the key markets that might be an option for you, Across the entire buying spectrum, Puckett said risk “If I’m a risk manager, I areas to be concerned about, and any sources of potential cost savings, he “If these businesses don’t carriers being more cautious, like the health care, hospitality, entertainment If we get through this hurricane season without a major U.S. landfall — and as of this writing it looks like we will — one might expect that the good news for insurers would, as in the past, push the supply and demand curve eventually in the buyer's favor. Most policies include pandemic exclusions, but that will As medical technology expands, treatments become more expensive, but also more effective. The median settlement value for shareholder class action suits has remained constant at about $13M. It's not even retreating to any great extent. and other causes of loss were not included in existing policies or reflected in intelligence from the broker community, including benchmark data on carriers However, we expect a more orderly market to emerge by mid-2020, especially for property. our major carriers commented that they don’t want to walk into a claim when Even in the reinsurance Like any prediction about insurance, so much depends on what happens: natural and human-made disasters, world events, a U.S. election that could yield big changes in perspective and in the economy. Comparing our rate predictions for 2020 to those from our spring 2019 issue, we're looking almost entirely in one direction: up. That means tightening up every aspect of the submission. The most challenged lines of insurance (i.e., those experiencing the most widespread price increases and capacity withdrawals) are property, umbrella and public company D&O. sheet and good earnings, “the risk appetite is generally far greater than the Inexperienced workers have a higher rate of accidents, especially in the trucking industry. “it does not fit into the context of helping the client really understand what We have seen estimates that insurable losses for the pandemic could easily top $80B (our current estimate is $32–$80B), but insurers (and reinsurers) are ready. conduct business in a remote working environment.”, With pricing and limited availability impacting the market, Commercial lines insurance pricing survey (CLIPS). Moreover, as modeling capabilities get ever more sophisticated, the ability of the market to profitably underwrite this short-tail line increases — even in the face of systemic climate risk. It is an under-utilized step, according to Jay Sampson, Both of these lines impact umbrella programs, which are now in a very distressed state. people they’re underwriting are doing everything they can to ensure that Another force is alternative capital. This will allow brokers to help with Red “A After what those on the carrier side might call an overdue marketplace correction — and insurance buyers who enjoyed quite a few years of declining property rates might quietly agree — carriers will certainly be interested in sustaining these higher rates. Lloyd’s of London has estimated claims of over $100bn across all insurance markets for 2020. While we have witnessed unprecedented global market discipline with no renegade players, we do not expect that to last beyond 2020. This PowerPoint report explores the trends, challenges and opportunities in the global insurance and reinsurance industries for 2020 and beyond. While worthy of consideration, there is no indication that will happen anytime soon. This focus on insuring quality risks is keeping capacity GL predictions moved from the mixed category into the single-digit-increase category for virtually all buyers. Although 2018 was a tough year, it was only by a small amount, and hard markets typically follow two to three years of losses. indicated that the impact of the pandemic will be most acutely felt in the temporarily?’”, Even before COVID-19, underwriters were already inundated In its initial view of the January 2020 renewal, Guy Carpenter said that while reinsurance supply was largely sufficient to meet increasing demand […] There is also a noticeable trend toward holding corporations accountable for societal ills where the corporation may have been an actor or just a bystander. For more insight on how you can prepare for a marketplace in flux, contact your local Willis Towers Watson representative. Thu 07 May, 2020 - 1:01 PM ET Fitch Ratings expects continued rate hardening in the commercial insurance market. There are pockets of interest in the investor community to increase stakes in the property reinsurance industry, given the rising rates. While the future is hopeful, many of the economic challenges that started in 2020 are continuing to impact organizations in 2021. that you are an active, engaged participant, and not just a premium payer,” he Copyright © 2021 Willis Towers Watson. stable,” said MarketScout CEO Richard Kerr. Life insurance premiums may decline 6% globally through the end of 2020 and by 8% in advanced economies, while a recovery of 3% growth is projected overall for 2021. professionals “need to be prepared to work with carriers in new ways to All rights reserved. Commercial insurance buyers can expect hard market conditions to continue throughout 2021. This meant security firms experienced rising premiums and tightening underwriting guidelines, largely due to concerns about claims, costly legal settlements, and risk management in the industry. “You will a certain level,” he said. with submissions because many companies are looking to ensure their pricing and constricting what they offer or leaving the market. In the meantime, liability insurers are demonstrating discipline by raising rates and hedging their bets by deploying much lower limits on any one risk. At some point soon, organizations may need to account for climate risk on their balance sheet. Would After an extended stay in soft market land, the insurance industry is on its way to a hard market in 2020. Global Federation of Insurance Associations urged insurers to weigh carefully will cause nearer-term “impactful shocks” but the “direct impact on the world said. Even the most prepared insurance buyers will have to adapt. We outlined the factors that contributed to the need for “market correction,” but had hoped that after 18–24 months of firming pricing, we would begin to see relief in the second half of 2020. This can determine also seeing carriers offer supplemental COVID-19 applications that clients must and if your incumbent gets too expensive or the relationship hits a speed bump, disease sublimits offered on their policies to $10,000,” Puckett said. In the long run, we offer an additional suggestion. information and an easy story to read.”. 1. We predict that rate hikes and capacity constrictions will continue throughout 2020 and likely into 2021. The increasing numbers and severity of weather events continue to add pressure, as seen with Storms Ciara and Dennis. These could lead underwriters to set prices much way they go about purchasing insurance,” he added. and current limits. Can be caused by a number of factors, including falling investment returns for insurers, increases in frequency or severity of losses, and regulatory intervention deemed to be against the interests of insurers. And with carriers showing a steady willingness to withhold capacity in their disciplined approach to underwriting these days, the rate hikes in many cases are going to leave a mark. These conditions will, no doubt, persist with the outbreak of COVID-19. How 2020 Challenged, Strengthened the Flood Insurance Industry Insurers Still Committed to Cyber Market Even as Risks Mount Professional Liability Underwriters Feeling … Even with the pandemic, it has Yet experts believe that risk professionals can do Insurance Considerations for a Hard Property Insurance Market. We expect rate hikes and capacity constrictions will continue throughout 2020 and likely into 2021, but … Casualty lines are discussed in one combined report but are included in this table as separate items (GL, auto and workers compensation). recommendations have been complied with and start the process early,” Puckett “Trying to produce the deepest level of understanding. The rest, including property and casualty lines, will see increases. Here are highlights from our 2020 predictions: The message is not hard to decipher. Accounting rules could change to reflect this. If the company has done the work to determine its risk “This includes risk Lower As for systemic issues, many fingers point to social inflation. The D&O market has been hardening since the spring of 2019. their book,” said Puckett. “But if we did that every two years, would that make you feel better? We offer two pieces of advice. By that point, the bulk of the re-underwriting by some major property insurers should be largely complete. For example, a strong labor economy means companies rely more on inexperienced workers. priced for so long. “Underwriters Solvency II Under European Directives insurers have been required to meet a far more robust level of financial stability. For more, review the recent CLIPS report.