Market hardening trends continued for the 11th consecutive quarter in Q2 2020, according to the Council of Insurance Agents & Brokers Property & Casualty Market Survey, with a 10.8% average premium increase across the commercial sector. Middle Market and Large Commercial accounts saw average rate increases between 11-14%, while smaller commercial business saw increases in the 7% range.The most substantially hit lines of business were once again Umbrella and D&O with 20% and 16.8% increases, respectively. Another big piece of news comes from Workers’ Compensation, which saw its streak of 21 consecutive quarters of decreasing premiums come to an end.
While COVID-19 has certainly impacted several lines and significantly increased underwriter scrutiny, the exact scope and severity of this impact remain unknown for many.
Umbrella, General Liability and Commercial Auto
Umbrella saw the most dramatic increase with a 20% spike in premiums. This increase represents the first increase of over 20% for any commercial line since the 9/11 terrorist attacks.
The driving force behind Umbrella’s steep pricing increases is a trend of high-dollar verdicts against organizations. General liability, especially in construction or related to sexual abuse, has resulted in multiple nuclear verdicts.
Perhaps one of the biggest storylines in Q2 2020 was the end of Workers’ Compensation’s streak of 21 consecutive quarters of premium decreases. Worker’s Compensation premiums saw a slight increase of 0.7%.
“While workers’ compensation decreases have often offset increases in other lines, this line of business may have reached an inflection point in Q2 2020,” said Ken Crerar, president and CEO of the CIAB. “And though increased pricing was evident in previous quarters, it is also clear COVID-19 has had an impact, ushering in new pandemic exclusions, more scrutiny for new business, and significantly decreased capacity for related lines.”
Commercial property rates continue to rise, with a 13.3% increase in Q2 2020. These increases are due to a multitude of issues.
One of the most significant factors in property rates is an increase in natural disasters occurring in the United States. Hurricanes, tornadoes, wildfires and floods occurring more frequently than ever before are continuing to plague much of the United States and causing massive amounts of damage nation-wide.
Some recent examples of destructive natural disasters include Hurricane Sally, a Category 2 hurricane that battered the gulf coast in September, leaving millions of dollars in damages in its wake. Wildfires in California also continue to be widespread and uncontrolled. These fires have already caused extreme losses to personal lines as well as commercial property underwriting companies.
Directors & Officers (D&O)
D&O premiums increased by 16.8%, highlighting a steady trend of increases, dating back to the beginning of 2019 when the trend started with a 1.5% average increase. While COVID-19 has undoubtedly impacted D&O, the exact severity and scope are still unknown.
“COVID-19 has already brought increased bankruptcies, additional claims and other litigation as organizations struggle to respond to the economic, employment and operational challenges brought about by this ever-changing environment,” said John Milano, RCM&D’s Management Liability Practice Leader. “This increased litigation, along with other securities lawsuits and class actions, undoubtedly creates a more difficult insurance market.”
As we continue to make our way through the uncertainties of the COVID-19 pandemic, its effect on an already hardening market will continue to be a fluid situation. Additionally, lines in distress like Umbrella and D&O will be ones to watch closely as the full scope of COVID-19’s effect on them materializes. RCM&D will continue to monitor the situation and advise clients when insurance may be a tool to help navigate the unfolding situation.
It is important to note; the report represents overall trends for commercial property and casualty premiums. These trends may differ within a specific industry, region or sector.
If you have any questions about this report or would like to discuss how market trends may impact your insurance program, please contact your client service representative for more information or you may contact a trusted RCM&D advisor today.
The CIAB is the premier association for the top regional, national and international insurance intermediaries. The Council’s market survey, released quarterly, tracks trends in the US commercial insurance markets based on data and insights from member firms. RCM&D is a member of the CIAB.