As hawkish monetary policy, domestic inflation, and geopolitical uncertainty overseas continue to roil public and private markets, commercial insurance carriers seem to be taking note and adjusting their underwriting standards and pricing guidelines accordingly. Insurance Broker Marsh recently released their Global Insurance Market Index research report which outlines a number of changes to the commercial insurance industry.

According to Marsh, commercial insurance prices rose by 9% in the second quarter of 2022 and ~20% TYD. This is the 19th consecutive quarter in which composite prices have risen with declines in pricing not seen since 2012. However, this quarter’s increase was generally less than previous quarters which peaked at an increase of 22% in Q4 2020. (Source: Global Insurance Market Index)

Insurance Lines with the Largest Price Increase

Cyber Insurance pricing led the charge with a 79% quarter-over-quarter surge which is nearly as much as the previous quarter which saw a 110% increase. Insurance for secondary catastrophes also took focus as wildfires continued to impact the western United States and flooding remains a major concern in the south east. In addition to catastrophe insurance, carriers have also increased the price of property insurance in light of changes to real estate valuations - which have been impacted by inflation, supply chain management issues, and labor shortages.    

Lucy Clark, President of the Specialty and Global Placement Business at Marsh, said in a statement, "At a time of global business uncertainty, driven by the ongoing war in Ukraine, supply chain disruption, and rising inflation, trading conditions remain tough for many clients. We are also seeing the impact of rising inflation on insured values and exposure growth, which has the potential to impact pricing and insurer appetite." (Source: Global Insurance Market Index)

This sentiment is echoed by other industry experts who predict that the largest insurance carriers will be more conservative with their underwriting and more aggressive with their pricing for the foreseeable future. A recent report from the Council of Insurance Agents and Brokers found that medium-sized businesses saw an average insurance premium increase of 10.6% in Q4 2021. Small businesses experienced an average 6.3% increase in the same period. (Source: Council of Insurance Agents and Brokers)

The Report outlined three major causes for these price increases.

  1. Inflation - In March 2022, the consumer price index (CPI) jumped 8.5% from a year earlier, which the association noted is the fastest 12-month surge since the early 1980s. Insurance carriers are working to keep up with inflation. (Source: U.S. Bureau of Labor Statistics)
  2. Legal System Abuse - The losses incurred by the P&C industry for general liability have skyrocketed more than 57% since 2017. This is largely due to increases in lawsuits against insured organizations and larger, court-directed payouts to successful plaintiffs.
  3. Cyber incidents - Ransomware has taken center stage as a major cyber security risk with individual payments often reaching $1 million and claims payouts reaching nearly as high. The growth of these attacks has resulted in loss ratios for standalone cyber policies of over 50% with expectations that this will increase in the near future.

Robert Gordon, APCIA Senior Vice President of Policy and Research, remarks, “US P&C insurers faced an $11.3 billion net underwriting loss in third quarter 2021. These trends are not sustainable.” While market volatility will subside eventually, the outlook for the next 12 to 18 months is dim with expectations for rising costs and increased underwriting scrutiny across the industry and particularly in the cyber insurance space.  As such, insureds should make their policy elections now before they get re-priced at even hire rates. (Source: American Property Casualty Insurance Association)

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