NEW YORK, NY, May 4, 2023 — In WTW’s latest Insurance Marketplace Realities (IMR) report, Spring 2023 update, most coverage lines continue to demonstrate a stabilizing market trend that began in early to mid-2022. While many coverage lines are demonstrating increases, they are more manageable than they were 6 – 12 months ago. The trend around softer renewal rates in some lines creates opportunities for buyers, according to the most recent IMR report from WTW (Willis Towers Watson, NASDAQ: WTW), a leading global advisory, broking and solutions company.
From a macroeconomic standpoint, markets are experiencing improving investment yields and surplus is growing in many areas, suggesting healthy markets. On the flip side, inflation is near 40+ year highs and the Federal Reserve has been raising interest rates in an effort to tamper inflation and stabilize the economy. With the first quarter of 2023 showing GDP growth of 1.1% in the US, coupled with the impact of climate-driven events, record inflation and high interest rates, the commercial insurance industry has some difficult factors to maneuver. With respect to property losses, some markets such as New Jersey have seen climate-driven events rarely, if ever, seen before including tornados and wildfires in recent months. Concurrently, states in the Northern Plains and Upper Midwest have experienced record-breaking snowfall throughout the winter, which is now leading to floods, mudslides, and associated property damage from the melt and runoff as the weather warms up and the melt begins.
On 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, according to the Bureau of Labor Statistics. Further, while 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.
While these economic trends jointly signal a healthy economy, 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 unique situations maxing at 20 – 25% at most. However, recent macroeconomic factors and climate-driven property losses [from the first quarter of 2023] suggest property insurance rates will not be abating anytime soon.
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. Within the Cyber market, late 2022 rates were demonstrating 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 bucking 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%.
Jon Drummond, 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.”
| Property | |
|---|---|
| Challenged Occupancies | +25% to +40% |
| Non-challenged Occupancies | +10% to +20% |
| Domestic casualty | |
| General liability | -3% to +5% |
| Umbrella (high hazard) | Flat to +15% |
| Excess | Flat to +5% |
| Workers compensation | –5% to +2% |
| Auto | +5% to +10% |
| International | Flat |
| Executive risks | |
| Directors’ and officers’ public company (primary) | -30% to Flat |
| Directors’ and officers’ private / not-for-profit (overall) | -10% to Flat |
| Side A / DIC | -15% to -10% |
| Errors and omissions (large law firms) | +5% to +10% |
| Employment practices liability (primary) | Flat to +10% |
| Fiduciary (financial institutions) | -15% to + 20% |
| Cyber | |
| Cyber | Flat to +10% |
| Political risk | |
| Most risks | +10% to +45% |
| Terrorism and political violence | |
| Terrorism and sabotage | +15% to +20% Non-volatile territories +20% to +30% Some volatility and/or isolated events +30% to +40% Major volatility and/or widespread risk of major incidents |
| Political violence | +25% to +35% Non-volatile territories +35% to +50% Some volatility and/or isolated events +50% or higher Major volatility and/or widespread risk of major incidents |
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