What Happened in 2021
As we look back on another year marred by the COVID pandemic and look forward to “reporting season” for the publicly traded insurance markets, we want to take time to reflect on the past and future impacts on our clients and prospects.
As reported by IVANS Insurance Services (1), average renewal rates experienced a general uptick across all major commercial products compared to the prior year, specifically:
- Commercial Auto: ended the year up approx. 5%.
- Business Owners Policy (BOP): up 6%.
- General Liability: up 5%.
- Commercial Property: up 6% for risks not exposed to catastrophes, but consistently higher compared to all other lines of business in 2021.
- Umbrella: up over 5%.
- Workers’ Compensation: down approx. 1%.
Marsh reported similar numbers for Property and Casualty lines of coverage (2), which were still marked improvements over the increases that began in Q3 of 2019 and extended through the first part of 2021
Hard Market – Risk and Insurance Magazine has identified nine trends that are driving rate increases (3), the highest impact from:
- Severe Weather (see below re: Natural Disasters)
- Litigations Strategies
- Driving Dangers
- Economic Climate (see below re: Low investment returns)
- Savvy Plaintiff’s Bar
What is a Hard Market? In the insurance industry, a hard market is when premiums increase and capacity for most types of insurance decreases. The current hard market began in Q3 2019.
Natural Disasters – the National Oceanic and Atmospheric Association (the same folks that sponsor the National Hurricane Center that tracks tropical cyclones (4)) identified 20 events in 2021 that exceeded $1B of Insured Losses in the U.S. alone (5). 2021 followed 2020, which had 22 billion-dollar weather disasters (6)! According to Munch RE (7), natural disasters in 2021 caused overall losses of $280B, of which roughly $120B was insured, a relative tie for the second-costliest year ever for the insurance industry.
Low Investment Returns – When interest rates are high, insurers can allow a certain amount of underwriting loss as they generate substantial investment income. Unfortunately, this is no longer the case, as the current interest rates remain at the lowest they have been in recent years, leaving insurance companies no option but to increase rates to help balance their books (8).
What We are Watching in 2022
Rates – in a report released January 8, 2022, Finch Ratings Inc. projected that “the magnitude of rate increases are anticipated to decline, but remain positive through 2022 (9).” A significant driver of future rates will be the impact of the reinsurance renewals that took place January 1. Catastrophe losses are driving property rates and a constrained retrocessional reinsurance market is shrinking excess capacity; casualty rates also rose, but in narrower range (10).
Valuations – Property rebuilding costs have risen due to spiking material costs and labor shortages; additional stressors include economic inflation and current supply chain issues. In our own renewal book, underwriters are asking for insurance-to-value increases in addition to rate increases.
At Windermere, we are constantly monitoring the overall insurance market, as well as other economic factors that affect underwriting decisions, with a continued focus on delivering a superior product and service to our clients!
- (1) https://www.ivansinsurance.com/en-us/news/press-releases/2022/ivans-index-q4-and-2021-results-released/
- (2) https://www.marsh.com/us/services/international-placement-services/insights/us-gimi-q4-2021.html
- (3) https://riskandinsurance.com/sponsored-9-trends-that-are-driving-rate-increases1/
- (4) https://www.nhc.noaa.gov/
- (5) https://www.ncdc.noaa.gov/billions/
- (6) https://yaleclimateconnections.org/2022/01/third-costliest-year-on-record-for-weather-disasters-in-2021-343-billion-in-damages/
- (7) https://www.munichre.com/en/company/media-relations/media-information-and-corporate-news/media-information/2022/natural-disaster-losses-2021.html
- (8) https://embarkgroup.co.uk/insights/the-insurance-market-2021-hard-markets-conditions-bite/
- (9) https://www.businessinsurance.com/article/20220111/NEWS06/912347139/Price-increases-to-slow-in-2022-Fitch
- (10) https://www.businessinsurance.com/article/20220111/NEWS06/912347110