Insurance Marketplace Realities 2023 Spring Update

Searching for an elegant way to summarize the trajectory of the insurance industry over the last quarter has been a somewhat frustrating effort, so I will settle, instead, for some very practical language. It’s been a mixed bag.

Big news in the first quarter of 2023 was the failure of Silicon Valley Bank (SVB) in early March and the demise of several other major global financial institutions. At the Zywave Advisen Casualty Conference a few days after SVB, I sat with Russ Johnston, president of Nationwide Commercial Lines, on a View From the Top panel where he described our economy as being in the longest telegraphed recession in history. While perhaps said in jest, the statement certainly feels directionally accurate. The interest rate environment has impacted all and has far-reaching implications in a cash-heavy industry like insurance.

That said, the financial markets remain strong, and unemployment is still low. While what 2023 will bring to our economy remains predictably uncertain, our insurance market is, for the most part, telegraphing positive signs for our buyers.

Leading the way is directors & officers insurance. The strong financial market in the last few years has mitigated claims activity, and insurance carriers are aggressively pursuing market share, which is helping drive down pricing at rates unseen in more than a decade. Even the cyber marketplace has new capacity pursuing growth, and while just a short period ago one could expect 50% (or more) rate increases on their programs, we’re now seeing those same programs renew with flat rates. Related, our experts have seen an uptick in ransomware activity in the last month, and should that trend continue, the market could be quick to respond.

The property and casualty market, however, appears to be in a state of unsettled disagreement, as it continues to be a tale of haves and have-nots.

Starting with the “have-nots,” it is a list of one – property insurance – and what they don’t have is CAT capacity. As the industry ushered in the new year all eyes were on January 1 property reinsurance renewals. While Hurricane Ian’s recorded record high $68 billion in insured losses had minimal impact on the commercial retail insurance market, it did have a profound impact on the reinsurers. Beginning in October reinsurers proclaimed a hard market, and January 1 arrived with higher premiums, bigger retentions and limited capacity for CAT coverage. This position has drawn the retail property market into a hard market, and many CAT-exposed risks are finding it difficult to fill out their programs. There are signs that reinsurance capacity may be more abundant come July, which would help ease the voracity of the hard property market.

On the flip side, one would have to go back to 2018 to see casualty capacity at levels higher than today, though deployment of that capacity has changed. Carriers are successfully ventilating their limits, and perhaps this strategy, along with some regulatory reform (e.g., Florida HB 837), could be enough to support long-term stability for this line.

So many ups and downs impacting the industry — you can understand my initial struggle in finding the right words to describe our current position. At the end of the day, we find ourselves in a cautiously optimistic “wait and see” position relative to several factors that can significantly influence outcomes for our industry. But while we’re waiting, let’s enjoy the positive trends that are forming outside of property insurance and make the most of the favorable conditions while we can.

Let’s also not forget that we’ve been through all this before. WTW has been helping clients work through difficult and uncertain times for decades, and we bring perspective that will help collectively move us through the challenges of today toward a brighter tomorrow.

Here are some highlights from our spring 2023 predictions:

For more insight on how you can prepare for a challenging marketplace, contact your local WTW representative.

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