2020 has been an intense year: a pandemic, civil unrest, and massive explosions, in addition to the natural catastrophes that take place each year, which now include events like wildfires and derechos. Considering this list of disasters, the primary issue impacting the P&C insurance market is uncertainty. Insurers have been working the last two years to address profitability problems that arose from a combination of inadequate pricing and increasing losses. COVID-19 added uncertainty because no one really knows the pandemic’s ultimate impact on the economy, financial markets, or insurance losses. The result is another year of rate increases for 2021.
In this year’s P&C Looking Ahead Guide to 2021, we forecast rate trends and offer actionable steps you can take to mitigate rate increases and coverage restrictions.
Another focus of this year’s Looking Ahead Guide is our Survey of Underwriters specializing in Middle Markets. Many of the factors impacting insurer losses over the last few years have been related to larger companies, leaving middle-market buyers to ask the question, “Am I really going to get that kind of rate increase?” We wanted to provide these buyers with guidance suited to their risks, so we surveyed several insurance underwriters about middle markets specifically to get their forecast for 2021. Read their responses in the Guide.
Forecast Topics in the 2021 Guide
We had high hopes for 2020 in the commercial lines insurance space. We had hoped that the catastrophes and the rate increases of 2019 would stabilize or flatten recent loss trends. We’ll have to leave that dream back in the blissful days of 2019 and focus on forecasting 2021.
Commercial lines premiums in 2021 will be impacted by the many events of 2020, so let’s start with COVID-19. According to Statista, estimates of total industry losses, including life insurance, have ranged from $80 billion to $140 billion. To date, most commercial lines insurers have reported the greatest losses in event cancellation, travel, and trade credit insurance.
Business interruption insurance remains a controversial topic because insurers have mostly denied these claims, citing either a virus exclusion on the policy or the fact that the business interruption did not arise from direct physical loss to the property. As of early August, over 700 lawsuits had been filed against insurers seeking coverage for denied business interruption claims.
Keep up with the latest developments with our Coronavirus Resource Page.
Disaster Events: Backdrop for Increasing Rate Environment
COVID-19 is just one piece of the 2020 roller coaster. The world also has had to contend with natural catastrophes, civil unrest, and explosions. The spring brought hailstorms and tornados to the US. Hurricane Laura caused estimated insurable losses of $8 billion to $12 billion. Insurable losses from the summer riots in the US were around $775 million, and the insurable losses from the Beirut port explosion are estimated to be about $3 billion. Losses from the numerous wildfires that hit the nation’s West Coast in late summer are sure to be high as well.
Disequilibrium Between Capacity and Risk Appetite
The current environment is a combination of losses and macroeconomic forces that shape the insurance industry, which is in a state of disequilibrium. Insurers are willing to offer capacity on most risks, but at a premium much higher than brokers want for their clients.
Unique Factors Contributing to the Current Commercial Lines Insurance Market
Historically low-interest rates went even lower as governments tried to stimulate economies in the wake of COVID-19. In this guide, we look at the factors that are combining to make this such a unique environment and therefore bringing such a strong pricing discipline to insurers.
- Global pandemic
- Relatively resilient US economy
- Healthy insurer balance sheets
- Increasing loss trends in most lines of insurance: property, auto, primary and excess casualty, D&O
As we look to the year ahead, we see the property insurance market reacting to large and unexpected losses in 2020.COVID-19, damage caused by civil unrest, and natural catastrophes are three major factors contributing to the double-digit rate increases we anticipate in commercial property insurance in 2021.
3 Contributing Factors to Rate Increases
- Civil Unrest
The Result? Bigger Losses
Many insurers won’t achieve underwriting profit in 2020. Rate increases will vary by industry, occupancy, risk quality, and catastrophe exposures. We anticipate rate increases between 10% and 20% for accounts with a good loss history, superior risk management practices, and strong carrier relationships. Companies deemed to be high-risk or that have an unfavorable loss history could experience a rate increase in excess of 25% in addition to higher deductibles and tighter policy terms and conditions.
How to Improve Your Risk Profile in a Tough Property Market
- Get a Head Start
- Valuation and Business Interruption
- Highlight Risk Improvements
- Invest in Relationships
Increasing premium rates, disappearing capacity, and sharpened underwriting discipline dominated the casualty insurance market in 2020. What challenges will corporate insurance managers have to navigate in 2021? Our view is that many large enterprises can avoid the huge rate corrections they faced in 2020 with strategic renewal planning and creative risk financing approaches. However, the pricing corrections that impacted big companies are now spreading to the broader market, requiring a new focus on leveraging market relationships and proactive risk management.
Learn more in the Guide about the 2021 outlook on:
- Workers’ Compensation
- Commercial Auto
- General & Products Liability
- Excess Liability
- Achieving Better Casualty Renewal Results with Strategic Loss Control
- Pandemics and Contagious Diseases
In 2020, more than half of the companies around the globe were hit with a ransomware attack. Keep in mind that 94% of the time that a ransom is paid, it’s paid by the insurance company. The global average to remediate these attacks is just over $761,000 per incident, according to 2020 data.
The frequency and severity of ransomware attacks will continue to be major contributors to the increase of cyber insurance rates from 10% to 25% or higher in 2021.
It’s not just ransomware losses, though. Insurers are also bracing for impact related to General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) claims. We’ve already seen how GDPR fines have played out globally, with some companies dealing with penalties in the multi-millions.
Five Best Practices for Securing Coverage in a Changing Market
- Conduct Employee Training Programs
- Deploy Multi-Factor Authentication
- Secure Any Open RDP Ports
- Have Offline Backups
- Perform Risk Quantification to Determine Limits
Premiums in the cargo/stock throughput (STP) market have increased dramatically in the last year. In order to get a better understanding of the dynamics in this niche segment of the insurance market, we went (virtually) to the heart of this market: London.
Will Ripley, Head of Marine & Cargo at GAWS of London, interviewed several London cargo underwriters to get their view on this market and what insurance buyers should expect in 2021.
Our experience during the last two years of increasing pricing has been that large companies are seeing bigger increases than medium-sized companies (middle markets) and small companies. Given that the US economy is made up of many more medium-sized companies than large, we wanted to give more targeted guidance to these companies. To that end, we surveyed underwriters specializing in middle markets at 12 insurers, including CNA, Chubb, The Hartford, Liberty Mutual, and Travelers.
Woodruff Sawyer is a champion for its clients. Our comprehensive process and loss control expertise reveals a broader view of your risk and drives down your total cost of risk. Uncertainty may be surrounding us but the right insurance program will bring confidence in making critical business decisions to grow your business. We look forward to partnering with you in this growth.
Related Blog Posts
In this 3rd Quarter Commercial Lines Insurance Market Update, we look at the sources of this uncertainty, from COVID-19 to ransomware, in an effort to help you prepare for increasing premiums and other impacts on your business.
The theme of the year is a hardening market. On the casualty side there has been an explosion of large liability claims and reductions in excess liability capacity.