Insurance Marketplace Realities 2022 Spring Update

If you’re looking for precedents for what’s facing our world and our industry today, you have to go back decades. It’s been over half a century since large-scale armed conflict broke out in Europe. It’s been decades since inflation hit levels we’re seeing now. It’s been over a century since the world faced a deadly pandemic, an ordeal we all hope is in its last significant chapters. In short, you have to go back a long way to find a moment with commensurate levels of disruption.

As crisis in Ukraine continues, our first thought is about the resulting humanitarian crisis. With civilians suffering, the number of refugees swelling, and the hopes of a quick negotiated peace disappearing, our hearts go out to all those impacted by this tragic turn of events. Our second thought is about how we help our clients manage their personnel, investments, operations and businesses in this region. The global economic impact of the crisis and the sanctions against Russia is still a big unknown. In terms of insured losses stemming from the crisis, we estimate now that P&C insurers could be looking at something close to $15 billion. That’s a big number, but to put it in perspective, 2021 brought over $130 billion in insured catastrophic losses.

Turning to inflation and the overall prospects for the North American economy, there are several factors at play. Some indications point to a leveling of inflation, but common household costs keep climbing – just ask anyone filling up their car at a gas station. Meanwhile, the future of interest rates adds to the uncertainty. The Fed is raising rates, as national economic attention moves from the pandemic to rising prices, but how fast and how far rates will go up remains to be seen. Other indicators give cause for concern. Home mortgage application recently fell to their lowest point in two years. The overheated home real estate market that took hold in the pandemic may be cooling off, and perhaps other parts of the economy will pull back with it.

These broad economic trends of course impact the P&C industry, and for more detail on how all that might play out, we include the article, Inflation, investment returns and new upward pressure on insurance rates from some of our industry analysts. But in the bigger picture we’re happy to offer a bright spot in this otherwise dark moment in history. By several key measures, the insurance industry is in a better position than ever. Policyholder surplus has surpassed a rather astonishing one trillion dollars. Net income is at unprecedented levels. Return on equity (ROE) for insurers is also up significantly. The industry is more than ready to handle the $15 billion in losses the Ukraine crisis could yield.

For buyers, the marketplace still has its challenges, especially for less attractive risks. Rates are still going up in most lines, as reported below. But in most lines, increases continue to decelerate, and the market is stabilizing. The solid foundation for insurers should ultimately bode well for insureds.

Of course, much could change in the next six to 12 months. Disruption and uncertainty are the watch words of the day. But in our world, there’s another watch word: resilience. In fact, that summarizes what we do for our clients: offer the perspective to respond to uncertainty, disruption and risk and help them keep moving toward resilience.

Looking forward, looking back

The most eye-catching story when it comes to insurance rates remains with cyber. While the hard market gradually loosens its grip, cyber rates continue to spike — and spike higher. Last fall we predicted increases of 50% to 150%. Now we are forecasting 100% to 200%. Outside of cyber, conditions are slowly improving for commercial insurance buyers in North America. Increases are still the norm, but the deceleration of those increases is now at the point where a fair number of insureds can expect single-digit increases or even flat renewals for the first time in several annual cycles — as long as they can present a compelling risk picture to the marketplace.

We are, of course, a long way from a soft market. This issue marks the fifth in a row where the number of lines predicting rate decreases has come in at zero. Experts in 26 of our now 33 lines of coverage (we added architects and engineers this issue) are predicting that most buyers will face increases. But even here there are some breaks in the clouds: eight of those lines put the bottom end of their rate prediction at flat increases. And in 13 lines, half of the 26, the increases are forecast to be smaller.

Here are highlights from our spring 2022 edition:

• Property is one of the lines where the bottom end of the rate prediction is flat — down from +2% to +10% for better risks. Less attractive risks can still expect to see +15%.
• Liability increases are expected to dip modestly, from a range of +5% to +12.5% to a range of +4% to +10%.
• Similarly, predictions of umbrella increases dipped (from a range of +10% to +30%) to <+20% for high hazard risks and from <+20% to <15% for low/moderate hazard risks.
• D&O is forecast to see some rate decreases in some best-case situations for the first time in several issues of this publication.
• Three lines that have been forecasting rate increases but now include the possibility of flat renewals are fidelity/crime, energy and D&O for financial institutions.
• Two lines moving in the opposite direction are terrorism and trade credit – perhaps not a surprise given the crisis in Ukraine. In these lines, predictions of small decreases for some have given way to predictions for flat renewals at best for trade credit, and increases in double digits for many buyers of terrorism and political violence cover.
• Similarly, two lines are calling for higher increases than in the fall edition: personal lines and life sciences.

In short, buyers will still be paying more for their insurance in most cases. But in most lines, with the notable exception of cyber, improvement is expected to continue through 2022 — unless inflation and/or the crisis in Ukraine end up turning the direction of the marketplace.

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

Table of Contents