As we continue to navigate an unprecedented hardening market paired with the COVID-19 pandemic, it is clear that the alarming trends of previous quarters are going nowhere for now and are being further exacerbated by the pandemic. Market-hardening trends continued in Q3 2020 according to the CIAB’s Q3 2020 Commercial Property/Casualty Market Index, with premiums increasing at a decisive rate of 11.7% across all-sized accounts for the 12th consecutive quarter.Large- and medium-sized accounts were the hardest hit with premium increases of 15.3% and 12.7%, respectively. Small-sized commercial business accounts experienced increases of a little over 7%.
“It’s clear the pandemic has accelerated the market conditions observed in previous quarters,” said Ken Crerar, President of the CIAB. “The financial stress from the extended economic contraction has contributed to increased premium pricing across the board, heightened insurer wariness and reluctance to take on additional risk. Brokers must act as trusted advisors for their clients and help them through this troubled time.”
Q3 2020 further solidified Umbrella and Excess Liability lines as some of the most troubling lines of business. Umbrella premiums increased at a rate of 22.9%, up from 20% in Q2 2020.
Social inflation continues to be the topic many CIAB survey respondents point to as a significant reason for this continued dramatic increase. Large jury verdict awards and public sentiment growing increasingly anti-corporate define social inflation. This has resulted in the large-scale development of liability losses. Historical pricing models for this line are rendered obsolete as the line continues to transition.
Years of underpricing are also affecting the current state of these lines. Umbrella and Excess Liability is not priced proportionately with the millions of dollars of risk assumed by insurers and reinsurers. Higher premiums may simply be required for the profitability of these lines.
After ending its streak of 21 consecutive quarters with decreasing premiums, Workers’ Compensation experienced another rate increase in Q3 2020, this time of 1.5%.
COVID-19 and questions surrounding whether or not carriers will begin to pay out claims related to the pandemic have all played a role in these rate increases.
Commercial Property lines continued to see significant hardening in Q3 2020 as premiums grew at a rate of 14.2%, up from 13.3% in Q2 2020. This marks the 13th consecutive quarter of premium increases for Commercial Property.
Natural disasters continued to plague the United States in Q3 2020 and are the driving force behind Commercial Property’s continued hardening trend.
“The story of the Commercial Property marketplace continues to be the increased frequency and severity of natural disasters across the United States,” said Bill Edwards, RCM&D Commercial Property Division Director. “The unpredictability of these weather-related events makes it very difficult to project pricing going forward.”
Demand for Cyber coverage increased significantly in Q3 2020, as 74% of CIAB survey respondents noted an increase in demand. This has served as further proof that Cyber has become a standard form of coverage for businesses of all sizes and types. Throughout the course of 2020, cybercriminals have continued to conduct more sophisticated schemes on unsuspecting victims.
“Cyber risks continue to evolve, forcing the Cyber insurance market to evolve with it. We’ve seen significant change throughout 2020 and would anticipate that to continue into 2021. Despite these market adjustments, we continue to help insured organizations achieve favorable outcomes,” said Scott Martin, RCM&D Cyber Practice Leader. “A consistent trend within these experiences is proactively working with the insured to understand the developments with their Cyber exposures and risk management plans, then developing a strategy to manage the upcoming renewal given the market pressures appropriately.”
As we move closer to the new year, the effects of COVID-19 on the market will be critically important to continue to monitor. The availability of coverage and claims activity are both on negative trends for several lines, meaning being prepared upon renewal is a must.
Lines seeing the most significant price increases, such as Umbrella, D&O and Commercial Property, will continue to be watched as these situations play out.
Pre-renewal planning, risk control, alternative risk transfer, and developing carrier relationships will remain key to mitigating the market impact.