An overview of The Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Index Q4/2022
Each quarter, The Council of Insurance Agents & Brokers releases its Commercial Property/Casualty Market Index. Here, we review the Q4 2022 findings, which utilizes data from October 1 through December 31, 2022.
PREMIUM PRICING CHANGES
Like a slow and steady climb up a mountainside, the commercial insurance industry continued its march upward reporting its 21st consecutive quarter of premium increases across all account sizes in the fourth quarter of 2022. The good news is that the average premium increase plateaued slightly at 8.0%, just below 8.1% in Q3.
Small account pricing increases remained steady at 6.5% while medium accounts saw a decrease from 9.0% in Q3 to 8.3% in Q4, and large accounts saw an increase from 8.8% in Q3 to 9.1% in Q4.
Most lines of insurance continued on the path of stabilization with several experiencing a lower average increase in the last months of the year compared to the third quarter. Workers compensation continued to regain its status as a safe haven coming in at -1.1% in Q4, which was the fourth consecutive quarter in negative territory.
For lines of business, the average premium increase across all lines was at 7.4% in Q4, compared to 7.0% in Q3. This was the 22nd consecutive quarter to experience increases for all lines except workers compensation.
Umbrella saw an increase of 9.6% in Q4, finally breaking its streak of double-digit increases that spanned 12 consecutive quarters. For cyber, premiums continued to moderate in 2022 as well coming in at 15% in Q4, down considerably from 20% in Q3, 26.8% in Q2 and 27.5% in Q1.
Though rate trends provided a sense of relief, 67% of respondents said “high current premium” was top of mind, and 85% reported that “future premium increase” was a main concern.
When looking back at natural catastrophes in 2022, it’s no surprise that the one line that did not experience moderation in pricing was commercial property, which saw a sharp increase of 16%, compared to 11.2% in Q3 and 8.3% in Q2. This represented the highest increase across all lines of business, edging out cyber for the first time in seven consecutive quarters.
As in previous quarters, “tighter terms and increased scrutiny” remained as carriers pressed for more data in the application process. As a result of this trend, business owners will need to work more closely than ever with their brokers to secure the best coverage and rates possible.
NOTABLE LINES OF BUSINESS
Commercial property remained the line of business in the spotlight for two very good reasons—natural disasters and inflationary impacts. Additionally, respondents agreed that there is no relief in sight, with 93% pointing to inflation as the key culprit behind the upward shift.
Rising costs in nearly every sector impacted insurer payouts for replacement and rebuilding, which resulted in valuations driving price increases. The domino effect led to underwriters requiring “higher deductibles, higher pricing, and more restrictive terms” and using much more layering on all sizes of property risks.
Respondents also reported an 89% reduction in commercial capacity, 30% of which was termed as significant. “Inflation’s effects on property valuations and building replacement costs, as well as increased claims due to natural catastrophes, were the primary drivers for commercial property’s difficulties,” according to the report. Carriers also mandated building value increases, particularly for those properties that had not conducted a valuation in recent years.
Claims were up considerably at 71% in Q4, compared to 29% in early 2022. This was due in large part to Hurricanes Ian and Nicole, which sent the commercial property market reeling, particularly in southeast coastal regions. Business owners with catastrophe-exposed property and noncatastrophe-exposed property with a poor loss history or low risk quality were bumping up against capacity limitations and significant rate hikes, leaving some to assume more risk via higher deductibles or self-insured retentions.
With increasing severity of events and continued inflationary pressure, hopes for stabilization in 2023 remain elusive, and the year may prove to be one of the most difficult on record.
As a line of business, cyber has consistently led the way in the hard market with the highest average premium increases. It finally relinquished that position in the fourth quarter by coming in at 15%, well below its peak of 34.4% just one year ago.
A decline in claims activity proved to be a positive contributing factor for the slowing of rate increases, which fell 30% from the start of the year.
Historically, cyber coverage has been underpriced compared to its true cost of risk. As we gather more data in response to the influx of attacks and breaches in recent years, pricing can align more accurately with the costs associated with claims resolution. Recent activity in the line suggests that it may be stabilizing after a spate of sharp increases followed by four quarters of declining severity in rates. The relief is welcome for a line that has moved from being perceived as a nice-to-have coverage to a must-have coverage for business continuity.
Carriers continued strict risk management requirements and increased underwriting questions regarding “cyber hygiene.” Applications were more complex, and businesses were held to deploying multifactor authentication, patching strategies, and more.
For clients navigating the continuing hard market, engaging an expert insurance advisor remains key for risk management strategy, understanding the options, securing the best coverage available, and ultimately, peace of mind.