Insights

The Train Slows for Some: Q2 2021 Commercial Market Update

August 10, 2021

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

Q2 2021 is showing a mirror image of the trends we observed in Q1 2021: Rates are still increasing throughout the commercial market, but the pace of the increase appears to be slowing.

Sunset over city bridge with skyscraper buildings on the horizon

In past updates, we’ve commented that the basic law of supply and demand impacts insurance premiums, and this is driving some of the trends we are observing. Insurers take risk with the capital on their balance sheets and if that capital is reduced but demand stays the same or increases, premiums will go up. As losses across all segments of the commercial market mounted in the last three to four years, insurers cut limits (capital supply) to reduce their exposure. The result was a very painful experience for insurance buyers. In the classic supply-demand model, increasing premiums should attract more capital (supply) but that dynamic was muted by the uncertainty of COVID-19.

Rate of Increases in Premiums is Slowing

The good news is that the basic laws of economics are still at play, and we are now seeing more capital (supply) enter the market. The capital supply hasn’t increased enough yet, however, to start driving premiums down, but the rate of premium increases is slowing. We’ve seen oversubscribed deals in both the property and casualty markets for quality risks. Challenged risks in both segments can still expect to see sizable premium increases. Also, Q3 marks the beginning of hurricane season, and a few bad storms can quickly turn the positive momentum to negative within the property market.

Average property rate increases in Q2:

Average property rate increases in Q2 show that 5%-10% Non-CAT accounts and 10%-15% CAT accounts (favorable loss history); 20%+ Non-CAT accounts and 30%+ CAT accounts (unfavorable loss history)

Casualty rate changes ranged from +1% to +20% according to latest CIAB report:

 AutoWCGLUmbrella
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%
Q4 201910.50%-1.90%5.80%13.60%

Source: CIAB Q1 2021 Rate Survey

D&O Trends to Watch

D&O premiums continue to increase particularly for IPOs, SPACs, and de-SPACs. Outside of these segments of the D&O market, premiums continue to increase, although at a slower pace than in the last few years. As reported in our State of Securities Class Actions for Public Companies: Mid-Year Update, 2021, securities class action filings are down 13% compared to the first half of 2020. That’s good news as securities class actions drive public company D&O losses. This, coupled with about a dozen new entrants to the D&O market expected in the next 12 months, could be the start of a more positive trend for D&O buyers.

The likelihood of a public company being sued is 4%, down from the record-high of 5% in 2019.

Ransomware News Affecting Cyber Market

The encouraging trends end at the cyber market. Premiums are rapidly rising, insurers are cutting limits, and coverage is restricted in some areas. Q2 saw two high-profile ransomware events that impacted millions in the US—the Colonial Pipeline event that affected gasoline supply on the East Coast and the JBS USA event which shut down the company’s meat packing facilities in the US. These events got the attention of Congress and the White House, both of which are talking about strengthening our cyber defenses for critical infrastructure.

Phishing and ransomware attacks remain the Top 2 root causes of data compromises. Supply chain attacks continue to increase.

This is good news for insurance buyers and society overall. These events also started a dialogue on the impact of paying ransom as an incentive to hackers. Ransomware payments are covered under most cyber policies, which has protected many companies, particularly small- to medium-sized businesses, from incurring devastating losses. Politicians have stopped short of pushing for a ban, but they’ve expressed concern that such payments encourage more ransomware attacks. Insurers continue to offer this coverage, but scrutiny of security controls has increased.

38% increase in US Data Breaches Q2 2021 Graphic

Read the Q2 2021 Commercial Market Update for a closer look at each segment.

ON-DEMAND WEBINARS

FEATURED VIDEO

Woodruff Sawyer Creatively Structures Programs

 

Related Blog Posts

Was this post helpful?

See all articles by Carolyn Polikoff

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

LinkedIn

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