The insurance market continued to harden in Q1 2020 according to the Council of Insurance Agents & Brokers (CIAB) Property & Casualty Market Survey. Stricter underwriting trends and rising premiums continued with a 9.3% increase across all-sized accounts. This increase marks the 10th consecutive quarter of increases. While large and medium-sized accounts saw more dramatic increases, smaller-sized accounts saw a smaller 5.5% increase.
“Umbrella, Commercial Property and Commercial Auto were the hardest hit lines, with Umbrella and Commercial Property seeing double-digit premium increases—the largest since 9/11,” said Ken Crerar, President and CEO of CIAB.
The biggest question on the minds of many at the close of Q1 2020 is what effects the COVID-19 pandemic will have on the market. While it’s still too early to judge how the pandemic will affect the insurance market, some concerns are already emerging.
In the midst of the pandemic, there has been a scramble for accurate exposure data. With the sudden, drastic changes in business operations for a number of companies as well as revenue loss, layoffs and furloughed employees, a sudden shift to a fully remote workforce, and businesses being shuttered, the immediate focus has been on rating relief and flexibility in premium payment terms. Some carriers and lines of coverage have been more accommodating than others.
“To mitigate the market impact, it is critical to start the renewal process early,” said Matt Kahn, RCM&D Commercial Lines Director. “We must develop clear goals around limits and desired terms as well as provide underwriters with a detailed submission that highlights new risk management practices (including COVID-19 Risk Mitigation Policies and Procedures). These steps are what will generally distinguish our clients from the rest of the pack.”
Umbrella and Commercial Auto
Umbrella premiums continued to rise swiftly in Q1 with a 17.3% increase, up from 13.6% in Q4 2019. Underwriters have justified these premium increases due to “social inflation.” Societal shifts have led to much larger settlements and verdicts, thus affecting pricing.
One of the many additional factors driving this spike in Umbrella pricing is Commercial Auto, which saw its 35th consecutive quarter of increases. While Commercial Auto’s 9.6% premium increase is down from 10.5% in Q4 2019, it should be noted that statewide lockdowns due to COVID-19 took a number of drivers off the road starting in mid-march.
Along with Umbrella, Commercial Property saw a double-digit increase at 12%. This marks the 11th consecutive quarter of increases for Commercial Property.
A surge in tornado outbreaks is one factor in the increased premiums for Commercial Property. In October 2019, a massive storm struck Dallas causing $4 billion in damages. In March 2020, the Nashville area was hit with a devastating storm also leaving behind billions of dollars in damages.
Director’s & Officers (D&O)
Director’s & Officers (D&O) saw its 12th consecutive quarter of increases with an 8.9% jump. Societal trends, much like with umbrella, have been a root cause of the spike in D&O. Along with the circumstances affecting D&O under normal circumstances, the COVID-19 pandemic will undoubtedly affect this line.
“There are a number of factors fueling the increases for D&O that are being exacerbated by the COVID-19 pandemic,” said John Milano, RCM&D’s Corporate Liability Practice Leader. “The continually changing marketplace coupled with the uncertainty of the pandemic will influence carriers and underwriters.”
One bright spot that has endured the hard market has continued to be Workers’ Compensation, which experienced a decrease of 1.2%. It remains to be seen how the health and legal issues surrounding return to workplaces post-pandemic may affect workers’ compensation.
While Workers’ Compensation continues to decrease, it should be noted that the trend of decreasing premiums for this line has noticeably moderated from where it stood a year ago.
COVID-19 and Business Interruption
While we do not know the full extent of COVID-19’s effect on the insurance market, Business Interruption claims soared at the end of the quarter with 75% of CIAB survey respondents noting an increase in claims activity in Q1 2020. This is compared to just 18% in Q4 2019.
What we do know at this time is that the issue of Business Interruption due to COVID-19 will be a topic debated and litigated for years to come. The unprecedented nature of the COVID-19 pandemic has created a great divide in the availability of coverage as well as which Business Interruption claims will be paid out.
As we continue to monitor the hardening insurance market in Q2 2020, the COVID-19 pandemic leaves us with a number of questions going forward. Premium increases due to the pandemic as well as claims activity and the availability of coverage will be monitored as we continue to navigate through this unprecedented point in history.
You can download RCM&D’s one-page snapshot of the Q1 for 2020 results. The snapshot includes our key market observations as well as one-year trend analysis for many coverage lines, including Commercial Auto, Commercial Property, Workers’ Compensation, General Liability, Employment Practices Liability and more.