Market hardening trends, outlined in the CIAB’s Q4 2020 Commercial Property/Casualty Market Index, continued for the 13th consecutive quarter to close out a tumultuous year. Q4 2020 represents the third consecutive quarter of premium increases across all lines of business. Furthermore, while COVID-19’s effect is still felt across the market, the brunt of that impact may have passed as new threats take shape.
“The worst of the pandemic may have passed, but broker struggles continued into Q4 2020,” said Ken A. Crerar, President/CEO of The Council. “Umbrella and D&O liability posed continued challenges due to a reluctance for carriers to write those risks, and new trouble for cyber emerged following a recent uptick in costly ransomware attacks in 2020. Brokers should stand ready to help their clients understand and navigate these challenging market conditions and identify new and emerging risks.”
Umbrella/Excess Liability
Umbrella/Excess liability lines continued their troubling trends in Q4 2020, with premium increases sitting at 21.3 percent. This marks the third consecutive quarter of an increase of at least 20 percent and continues a sharp climb in rates that began in early 2019.
Nuclear verdicts and judgments continue to be a significant factor behind Umbrella’s continued hardening trend, according to CIAB survey respondents. Additionally, other factors to this rise of multi-million dollar judgments include third-party litigation financing. Plaintiffs can now holdout longer in the legal process than ever before to receive much bigger rewards.
Finally, years of underpricing for Umbrella have also come to a head, according to many survey respondents. This market correction further escalates the current difficult landscape.
Workers’ Compensation
The long streak of 21 consecutive quarters with decreasing premiums seems like a distant memory for Workers’ Compensation. The line experienced its third straight quarter of increasing premiums in Q4 2020. 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.
In fact, claims activity is also on the rise, according to the CIAB report. Thirty-seven percent of respondents reported an overall increase in Workers’ Compensation claims. This recent increased volume of claims can be attributed to a large number of workers returning to the job site in Q4 2020 following the lifting of COVID-related stay-at-home orders.
Commercial Property
Commercial Property rates are continuing to increase heading into 2021. For quality accounts with good loss experience and no significant cat exposures, we are seeing rate increases in the 15-20 percent range. We do not see any evidence of the pricing increases for property lines subsiding any time soon.
Natural disasters continued to plague the United States in Q4 2020 and are the driving force behind Commercial Property’s continued hardening trend.
Renewals will not only require increased rates and pricing, but coverage terms may need to be adjusted to some extent to make accounts more palatable to insurers going forward.
Cyber
Perhaps the most dramatic pricing increase in Q4 2020 was Cyber’s 11.1 percent spike, the highest since the CIAB began tracking it in Q4 2016. Throughout the course of 2020, the frequency of ransomware attacks on a vulnerable workplace contributed to this steady rise in premiums.
“We closed the book on 2020 with the cyber market experiencing the most dramatic shift thus far in its relatively short lifespan. The most notable changes to date include a more onerous underwriting process, with a thorough review of organizational securities and controls,” said Scott Martin, RCM&D Cyber Practice Leader. “Failing to meet certain underwriting standards will result in meaningful changes, including increased premiums and retentions, slashed limits, and in some circumstances, less favorable wording. We fully anticipate these trends will continue into 2021 and strongly encourage insureds to proactively consider steps they can take to minimize their risk.”
Looking Forward
While the brunt of COVID-19’s impact may have passed, the availability of coverage and claims activity are both on negative trends for several lines entering the new year. With this in mind, being prepared upon renewal will be critically important.
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. We expect these renewals to be difficult, meaning advanced preparation will be critical.
Pre-renewal planning, risk control, alternative risk transfer, and developing carrier relationships will remain key to mitigating the market impact.