An overview of The Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Index Q3/2020.
Across all industries, market conditions have been top of mind for insurance brokers and their clients. Many companies are hurting from pandemic lockdowns, and the continuing rise in insurance premiums is having a distressing effect on the hardest hit niches. With a hard market pressing in, we look to the data to stay informed on what to expect and why to properly prepare for what lies ahead.
Each quarter, The Council of Insurance Agents & Brokers releases its Commercial Property/Casualty Market Report. Here, we review the 3Q 2020 findings.
The market continues to harden, as is evidenced by an average 11.3% increase across all account sizes, up from 10.8% in the previous quarter. This is the 12th consecutive quarter premiums have increased, more evidence of the continuing upward trend. Large and medium accounts saw the largest increases at 15.3% and 12.7%, respectively. However, small accounts saw a bit of relief at 7.1%, a slight decrease of .2% compared to the previous quarter. The fact that a 7.1% increase represents the lower end speaks volumes regarding the current state of the market.
The largest premium increases were seen in umbrella (22.9%), D&O (16.1 %), and commercial property (14.2%). In the list of lines with rising premiums is workers compensation, which has been a soft line for the last few years. According to the report, it too is starting to trend up. This is consistent with what we’re hearing from senior officers in the insurance companies.
“We’re at the end of the soft market in workers comp. The one line of business that’s been our saving grace is about to turn the other way. That’s why preparing our clients for this trend, however uncomfortable, is critical,” says IOA President Jeff Lagos. “We are actively working with our clients now so they’re ready for this inevitable market shift. Businesses with the proper hiring, employee on-boarding, training, and claims management processes will be able to mitigate some of what appears to lie ahead.”
LINES MOST AFFECTED
For umbrella, the average increase of 22.9% outpaced commercial auto and commercial property. Three main reasons were noted: social inflation and nuclear verdicts (those that surpass $10M), typically associated with underlying commercial auto; reduction in reinsurance capacity; and consistent underpricing in previous years. However, all lines were implicated as sharing the cause of increase.
D&O is another line with a significant average increase in premiums at 16.1%. Slightly down from the previous quarter, this marked the 13th quarter of increase for the line. While 45% of respondents said they saw an increase in claims, they did not believe the pandemic drove the increase, but it had some effect on how carriers priced the line.
Commercial property continued to harden with an average increase of 14.2%, up .9% from the previous quarter, this marked the 13th consecutive quarter of increases. Natural disasters, including a record-breaking wildfire season in California, hurricanes, and a derecho served to drive the increase.
Additionally, a reduction in reinsurance capacity will continue to exacerbate the trend moving forward.
UNDERWRITING CAPACITY & FLEXIBILITY
A decrease in underwriting capacity hit umbrella, commercial property, and D&O the hardest. Umbrella decreased by 90%, and commercial property decreased by nearly 80%. Decreases also were accompanied by increased deductibles, lower limits, reduced coverage, and more restrictive terms as well as required additional information and financial and operational scrutiny.
Business interruption claims were a big concern early in the pandemic. However, while higher than normal, they decreased to 62%, down from 94% in Q2 2020. Other lines seeing higher claims included commercial auto and general liability, which still are at higher than normal levels. Beyond COVID-19-related claims, natural catastrophes drove an increase in commercial property claims.
COVID-19 definitely has played a part in current conditions. “It’s clear the pandemic has accelerated the market conditions observed in previous quarters,” said Ken A. Crerar, president & CEO of The Council. “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. It’s critical for brokers to act as trusted advisors for their clients and help them through this troubled time.”
Click here for The Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Index Q3/2020.
Click here for The Council of Insurance Agents & Brokers’ Commercial Q3 P/C Survey: COVID-19 Supplement.