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Positive Developments at a Slower Pace: Q3 2021 Commercial Market Update

November 9, 2021

/Property & Casualty/Management Liability/D&O/Cyber Liability

The third quarter of 2021 appears encouraging thanks to several positive developments in the commercial insurance market. While premiums are still rising, they’re rising much slower than in previous quarters. In fact, our Q3 2021 update found new insurers entering the market to provide the competition needed to stabilize certain segments, excluding cyber, which is covered below.

When new insurers enter the marketplace, they typically don’t drive the premiums down immediately. What they do provide is much-needed capital to increase capacity, which means some insurance buyers can now purchase the level of insurance they want.

For more in-depth insight, get our Commercial Lines Insurance Market Update for Q3 2021.

Premium increases continue to slow down in the D&O market, but not for IPOs and SPACs.

One item of significance in this insurance segment is a decrease in securities class action filings. Specifically, through Q3 2021, the number of securities class action filings declined by 19% compared to the same nine-month period in 2020. These securities class action filings are what drive the severity of claims for public companies. Even in a best-case scenario when the case is dismissed, companies still incur defense costs which can be expensive. This drop in securities class action filings should result in lower future losses—good for insurers—which in turn should translate to lower premiums—good for insurance buyers.

The likelihood of being sued is 4% with an average cash settlement of $28.6 million in 2020.

Derivative actions are on the rise.

The average settlement in 2020 was $28.6 million; The likelihood of being sued was 4%

Weather events threaten the Property market, as usual.

In Q3, program rates and policy terms and conditions continue to stabilize, while carriers continue to address the increased frequency and severity of natural catastrophes and secondary perils.

The third quarter of any year is fraught with tension in the property market thanks to hurricane season, and 2021 is no exception. To date, the US has named 21 storms, with Wanda the most recent in the first week of November. The good news for both property insurers and owners is that fewer of those storms made landfall. Hurricane Ida was the most destructive storm this season, with experts estimating losses between $30 billion and $40 billion. While Q3 2021 was an active season, we noted that premiums in the property market continue to stabilize, due to larger increases in the past few years.

According to NOAA, year to date in 2021, 18 weather events have incurred $1 billion or more in losses, the 4th highest insured losses in the 21st century.

Slowing premium increases in other segments like Casualty are notable, but some segments are still challenging.

For example, jury verdicts are more frequently large, and juries’ attitudes are evolving around corporate responsibility and litigation financing, which causes concern for the umbrella/excess market. On a brighter note, workers’ compensation premiums remain nearly flat.

By-Line 2nd Quarter 2021 Rate Changes Ranged From under 1% to +17%

Auto WC GL Umbrella

 AutoWCGLUmbrella
Q2 20216.80%0.30%6.00%17.40%
Q1 20219.00%1.00%6.20%19.70%
Q4 20209.10%0.40%7.30%21%
Q3 202011.00%1.50%6.70%22.90%
Q2 20209.60%0.70%6.80%20%
Q1 20209.60%-1.20%5.70%17.30%

Source: CIAB Q2 2021 Rate Survey

Ransomware continues to impact the Cyber market.

Cyber security was front and foremost in Q3 of 2021, and we expect it will likely continue into 2022. With skyrocketing premiums and insurers who are restricting coverage, ransomware losses are pushing cyber from a relatively stable position early in 2021 to where it is in the third quarter. We noted that pricing dramatically increased in late spring 2021 and through the summer. Insurers are looking more closely at cyber, and we expect increased underwriting attention focused on companies’ security controls. Those with poor security will likely find it nearly impossible to get cyber insurance with ransomware coverage included.

Cyber rates are increasing 65%+—more for companies with revenues above $100 million—for specific industries like manufacturing, healthcare, fintech, and technology.

Woodruff Sawyer’s pricing index for Q3 here represents the change in median primary and excess pricing by month or a trailing 12-month window.

Line chart depicting Cyber Pricing Index 3rd Quarter 2021

Read more detail about these Q3 2021 developments and trends in our latest Commercial Lines Insurance Market Update.

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Carolyn Polikoff

Senior Vice President, National Commercial Lines Practice Leader

Carolyn oversees our firm’s property & casualty and management liability services on an enterprise-wide basis, working to ensure consistent client service and strategy under a unified national structure.

415.402.6513

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Carolyn Polikoff

Senior Vice President, National Commercial Lines Practice Leader

Carolyn oversees our firm’s property & casualty and management liability services on an enterprise-wide basis, working to ensure consistent client service and strategy under a unified national structure.

415.402.6513

LinkedIn