Insurance Marketplace Realities 2022 – Introduction/Executive Summary

The hard commercial insurance market continues, but as a steady, gradual softening brings a welcome deceleration in premium rate increases, we are reminded of one of the oldest and most fundamental marketplace principles: the law of supply and demand. Supply, in the form of additional capacity provided by insurance carriers, is up, and a rise in supply is doing what it does best: lowers prices.

What brought about this rise in supply? A leading factor is of course the hard market. Higher rates offer improved rate adequacy and the opportunity for greater return on capital committed by insurers and other investors in the insurance marketplace. After several annual cycles with steep, often relentless increases, the marketplace has taken significant steps toward “correcting” itself – “correcting” from the point of view of the insurers. The forces that led to the hard market – systemic rises in risk from heightened cat losses likely driven by climate change, social inflation, rising exposures in areas ranging from cyber to liability – have not gone away. But one of the words that appears consistently through this publication, in our line-by-line predictions and commentaries on what we see ahead in 2022, is stability.

Two exceptions to the general trend are in cyber liability and fiduciary liability insurance. Rates have been going up steeply, and in the case of cyber, the increases we are forecasting for 2022 are even steeper. This does not contradict the rule, however. Losses are rising and capacity is tightening. Supply down, prices up.

So for the most part we are moving toward stability as we watch the workings of a simple economic law. That does not mean, however, that this is a simple marketplace. The two-tiered marketplace we highlighted in our last issue remains a reality in many lines of business: conditions are better for better risks and tougher — sometimes quite a bit tougher — for less attractive risks. The risk manager’s job of distinguishing his or her organization’s risks in the marketplace is more demanding than ever. More data and better data are required and expected, and the information must be presented in a way that is clear and compelling. Fortunately for insurance buyers, the tools to help analyze and present that data are getting better, too.

Here is where the idea of the new marketplace comes in. The new insurance marketplace is underpinned by risk analytics. It’s based on the unique and expanding insight available about perils across the spectrum and the greater amount of data that insureds have access to about their own exposures in particular. Then there are the analytics pertaining to the financing of risk, which involve taking business input, such as risk tolerance and strategic goals, and overlaying actuarial analysis across multiple lines of business to identify the optimal balance in terms of risk retention and risk transfer.

Another aspect of the new insurance marketplace has been brought on by COVID-19. We’ve discovered we can do our work remotely, most of it anyway, and that the virtual world has some advantages. It’s easier to bring people together for meetings, and for insurance buyers, bringing the C-suite to the negotiating table can have noticeably positive effects. Those meetings are also easier to organize virtually with underwriters sitting across the world and in venues some risk managers may never have had the opportunity to visit.  Employees within the industry, be they underwriters, brokers or risk managers, are enjoying the benefits associated with a commute to the living room versus the commute to the office.

However, it’s not necessarily all happy days between Zoom meetings and fancy statistics. Far from it. The responsibility of the risk manager is increasingly complex, overseeing the ever-evolving universe of data and analytics. At the same time, nothing will replace the relationships that are at the core of the insurance business and those relationship benefit from in-person connectivity. Many are reporting an emerging workday that never seems to stop. There are no after-hours — you’re just always on. How is the industry responding to talent development in this environment? Today’s younger generation certainly faces a different world from what many grew up with in the industry.

To sum up, and to return to the core topic of this publication, the cost of insurance is still going up – for the near term. Most buyers will be paying more, but marketplace results should be less painful. The two-tiered market, which has always been a reality to some degree, is still in effect in many places, but the downside of being in the higher hazard tier is not as bad. For better or worse, our industry will continue to move with the laws of supply and demand. If supply continues to come back as it has in Q2 and Q3 of 2021, we could see rate decreases commence as early as Q2 of 2022. This will not be a wholesale development across all lines, and distressed lines of business, most notably cyber, will remain challenged well into 2022.

Our subject matter experts have assembled excellent insights into the marketplace, and we look forward to helping you navigate the unique challenges of the day.

Looking forward, looking back

This issue marks the fourth in a row where the number of lines predicting rate decreases has come in at zero. However, the number of lines anticipating flat renewals or a mix of increases and decreases leapt from one to eight. In another good sign for buyers, 18 lines are predicted to produce increases lower than what our experts expected in the spring. In the case of umbrella and excess casualty, the relief from double- and sometimes triple-digit increases is as pronounced as it is welcome. D&O increases are easing and, looking ahead, some D&O buyers may see no increases at all — the first time in a long time.

One notable exception to the trend is in cyber insurance, where again rate increases have jumped — from +10% to +30% a year ago, to +25% to +50% in the spring, and now for 2022, +50% to +150%.

For the most part, however, these numbers and the line-by-line commentary included here tell a simple story: a rise in capacity has lifted supply, and the laws of supply and demand have come to the aid of the insurance buyer.

Here are highlights from our 2022 predictions:

• Property rate increases are decelerating, especially for better risks; those buyers can expect increases of 2% – 10%. For challenged occupancies, rate hikes are forecast at 15% or more, which represents a continuing decline in increases over recent renewal cycles.
• General liability predictions eased modestly: +5% to +12.5% (from +7.5% to +15%).
• Auto rate forecasts similarly dropped slightly: +5% to +15% (from +8% to +15%).
• Casualty excess liability predictions are now +15% to +30% or more for high hazard risks and flat to +15% for low/moderate hazard.
• Workers compensation is one of the lines now looking at a mix of small decreases and increases: -2% to +4%.

In short, the marketplace improvement we saw in the distance in 2021 is coming into focus for 2022, though buyers will still be paying more for their insurance in most cases.

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

Table of Contents

Introduction