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Survey Report

Insurance Marketplace Realities 2024 Spring Update – Middle market

May 8, 2024

While the property landscape has continued to trend favorably, carriers have refocused their attention to deteriorating results across their casualty books.
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Rate predictions: Middle market
  Trend Range
Favorable risks
Property
Increase (Purple arrow pointing top right) +2% to +10%
General liability
Neutral increase (purple line, purple arrows pointing up) Flat to +5%
Automobile
Increase (Purple arrow pointing top right) +10% to +12%
Workers compensation
Neutral decrease (purple line, purple arrows pointing down) -5% to flat
Umbrella
Neutral increase (purple line, purple arrows pointing up) Flat to +10%
Excess
Neutral increase (purple line, purple arrows pointing up) Flat to +10%
Challenging risks
Property
Increase (Purple arrow pointing top right) +10% to +20%
General liability
Increase (Purple arrow pointing top right) +10% to +15%
Automobile
Increase (Purple arrow pointing top right) +15% to +25%
Workers compensation
Increase (Purple arrow pointing top right) +5% to +10%
Umbrella
Increase (Purple arrow pointing top right) +10% to +15%
Excess
Increase (Purple arrow pointing top right) +10% to +15%

Despite a year of significant volatility, particularly in the property market, we ended 2023 with positive signs that stability is on the horizon. In 2024, casualty market conditions entered the forefront of renewal discussions as insurers face pressure on liability reserves.

Marketplace overview

  • When the property market was most challenged, markets reduced rates on the casualty lines to offset property increases. This trend has now put pressure on general liability pricing as losses continue to develop.
  • While middle market is an established segment in the broker and carrier community, additional markets continue to enter the space. Many of these carriers are aligning loss-sensitive program solutions and expertise to their MM teams to offer alternative program structures to this client base.
  • Several middle market carriers have implemented an industry specialization strategy and are moving away from a generalist model. This specialization has led to the creation of bespoke products and enhancement for target industries.
  • Carriers have introduced more accessible, specialized offerings in the middle market space, such as reputational risk, pandemic, active assailant, and parametric CAT coverage. These solutions can provide affirmative coverage in response to emerging risks.
  • Two-tiered marketplace dynamics persist. Carriers are eager to keep “desirable” industries and classes of business out of the market, and we’re seeing significant reductions when competition is introduced (e.g., financial institutions, technology, commercial real estate).
  • The insureds that continue to experience hard market pressures either fall within specific industry segments (e.g., multifamily real estate, transportation, social services, food and beverage.) or have significant losses and/or heavy CAT exposures. Proactive measures on risk control will play a key role for accounts in these categories.
  • Property rates have continued to level off, but capacity constraints will continue to be a challenge, particularly for CAT-exposed, challenged occupancies or schedules with valuation concerns. With increased scrutiny around capacity deployment, middle market clients are faced with considerable shifts to their historical program structures.
  • Multiline solutions can help establish profitability at an account level, leading to sustainability in programs. With that mindset, carriers are strategically leveraging property capacity to influence their participation on casualty lines. Additional capacity is being carefully reinstated by umbrella and excess markets to gain a competitive edge.

Property

  • Higher frequency, more severe natural catastrophes and mounting losses from unmodeled perils (such as wildfires, floods, convective storms) have strained insurer profitability. These perils are no longer viewed as secondary and accounted for most of the >$1 billion disasters in 2023.[1]
  • In comparison, the Atlantic hurricane season turned out to be relatively benign compared to initial predictions, which will hopefully bode well for renewed named storm capacity.
  • Property valuations continue to be a major concern for markets given record high inflation, labor shortages, construction demand and supply chain concerns. Corrective action is being taken via rate, increased values and coverage wording, such as specific limits or margin clauses (e.g., OLLE). For accounts where valuation was historically untouched, the corrections are more dramatic.
  • January 1, 2024 treaty renewals were substantially more stable than in 2023. In 2023, cedents were forced to retain more on a net basis, thus increasing rates and reducing capacity to manage margin erosion. As a result of these major rate corrections and increased retentions, reinsurers recorded near record profitability for 2023.
  • Tougher property risks that were written on a 100% single-carrier basis are being pushed to shared/layered programs due to their risk profiles and the market’s reluctance to deploy full capacity. These program restructures are prompting middle market insureds to reevaluate the cost efficiency of retaining more risk, as year-over-year increases can be dramatic.
  • A proactive strategy on valuation, accurate COPE, capacity and program structure will help brokers and their clients navigate these challenges. This should include a focus on both outstanding risk control recommendations and coordination of prospective carrier visits.
  • Water damage coverage is experiencing higher deductibles and lowered sub-limits, and water damage mitigation is a focus.
  • Uncertainty around valuation has also extended to business income and extra expense. With that, carriers have become more stringent on their requirements of a completed business income and extra expense worksheet.
  • Given the property market landscape, alternative strategies such as parametrics and facilities are becoming more prevalent in the middle market space.

General liability

  • While the liability market is still seeing single-digit increases, this is expected to shift in the next few quarters as reinsurance pressures amplify.
  • Social inflation continues to challenge the liability market as the amount of litigation and size of verdicts have increased dramatically. While most of these nuclear verdicts have been relegated to the large-client base, middle market clients will still realize the impact on general liability rates.
  • Carriers are struggling to accurately project these losses in this legislative landscape and, in turn, are focused on claim management tactics and limiting capacity on challenged classes.
  • Sexual abuse and molestation coverage continues to see capacity reductions and scrutinized underwriting. For hospitality and real estate accounts, there is a heightened concern surrounding human trafficking exposures.
  • Habitational real estate is an extremely challenged class necessitating E&S support with more frequency. Most admitted carriers will not consider a habitational schedule due to expected loss activity.
  • PFAS and biometric exclusions are becoming more prevalent; increased scrutiny is expected. With respect to PFAS, some carriers are willing to remove with confirmation of no exposure; however, others are taking a more stringent approach. These are both emerging topics, and carriers are concerned regarding the potential for class-action suits and the cost to defend.
  • Alternative solutions such as captives have become more prevalent in the middle market space and will continue to be developed to fit the needs of the middle market customer.

Automobile

  • The challenging legislative landscape is also the primary driver of challenged auto marketplace conditions. As aggressive marketing tactics ramp up, more attorneys are engaged following accidents thus directly impacting claim costs. Paradoxically, claimants are receiving less and less while attorneys’ fees increase.[2]
  • The increased average size (gross vehicle weight) and horsepower of vehicles have increased the severity of collisions. Enhanced technology in newer vehicles has also increased the cost of physical damage claims.
  • Mono-line auto risks are exceedingly challenging to place and should always be leveraged with other lines of business. Even for supported auto, carriers have remarked that 10% to 12% rate increases are the “new flat.”
  • Clients with large fleets and/or fleet makeups outside of private passenger vehicles continue to see a hard market with limited capacity and an increase in cost for that capacity.
  • Hired and non-owned auto continues to be heavily underwritten, and higher exposure accounts are less desirable.
  • The introduction of telematics in fleets has become a risk management norm for insureds.

Workers compensation

  • Carriers continue to view workers compensation as a profitable line and are looking to balance their books of business by writing more of this business.
  • Middle market carriers continue to improve their program structure and dividend capabilities to differentiate themselves in a highly regulated, competitive workers compensation market.
  • For guaranteed cost accounts, the continued reduction of state rates and loss costs has put pressure on carriers to adequately price certain risks.
  • Auto accidents have more frequently become the cause of severe WC claims over the past few years.
  • Carriers are strong proponents of technological advancements that can improve worker safety and claim outcomes, such as automation, wearable devices and equipment and AI solutions.
  • Potential headwinds might arise from the shift in the workplace demographic and working patterns (e.g., aging population and more remote workforce). Mental health challenges have also become more prevalent.

Umbrella and excess liability

  • Additional capacity is being carefully reinstated by umbrella and excess markets to gain a competitive edge. This capacity deployment coincides with stringent underwriting, and we expect this to continue.
  • Higher attachment points are being required by lead markets on both general liability and auto policies for higher risk industries. In these scenarios, buffer layers are being introduced more often.
  • While capacity for lead umbrellas has stabilized, there is still a lack of monoline umbrella or “unsupported” lead market appetite.
  • Supported leads tend to be more competitive as carriers leverage the primary lines with their umbrella capacity. In these competitive scenarios, insureds have been able to secure increased umbrella limits undoing retractions that may have happened in recent years.
  • Risk purchasing groups continue to be inconsistent with increased underwriting, appetite changes, reduced capacity, large increases and market participation changes.
  • Clients continue to review contractual requirements, risk transfer and limits purchased. If insured has a history of large losses, they should also be prepared to differentiate what risk management practices have been implemented to prevent similar claims.
  • PFAS (or “forever chemicals”), abuse and molestation, traumatic brain injury, wildfire, assault and battery, sex trafficking and biometric exclusions are being added, or coverage and capacity have been limited especially where exposure exists.

Industry spotlight: Healthcare

Rate predictions: Healthcare middle market
  Trend Range
Property
Increase (Purple arrow pointing top right) +5% to +15%
Auto
Increase (Purple arrow pointing top right) +5% to +15%
Workers compensation
Netural Decrease Increase (Purple arrow pointing top right and bottom down) -5% to +5%

Property

  • Loss control visits continue to be frequently required prior to quoting, especially for hospital systems with higher values.
  • Markets are becoming more focused on understanding the extent of high-value medical equipment, how it is protected and where it is stored.

Auto liability

  • Patient transport exposure is underwritten stringently, and carriers are comfortable with an incidental amount, if any. Both heavy patient transport and emergency transport exposures are generally placed separately from main fleet programs. Markets for these exposures are limited.
  • Monoline placements are extremely challenging to place.

Workers compensation

  • Underwriters continue to focus on controls, safety culture and claim reconciliation or lessons learned post-loss (e.g., after a workers compensation claim involving an employee improperly lifting a patient, client engages with risk control and implements a safe patient handling program along with additional training).

Footnotes

  1. 2023: A historic year of U.S. billion-dollar weather and climate disasters Return to article
  2. Legal System Abuse Adding to Increasing Auto Insurance Costs, Creating A New Asset Class of Investors Betting on Litigation Return to article

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Contacts

Krista Cinotti
Head of Middle Market and Select Broking, North America

Beth Cohon
Manufacturing Plus Middle Market Broking Leader

Adam Widdop, CPCU
Healthcare Middle Market Broking Leader

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