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Looking Ahead to 2022: A Guide to Property & Casualty Risk Management and Insurance

November 16, 2021

/Property & Casualty

The last few years have been a reckoning for the insurance industry and just when we thought insurance buyers might feel relief, COVID-19 entered the picture and extended challenging market conditions into 2021. However, as we look ahead to 2022, we see signs of positive changes for insurance buyers.

In our annual P&C Looking Ahead Guide, our property, casualty, and middle markets experts discuss the factors they expect will shape 2022 trends.

Once again, several cargo underwriters at Lloyds’ of London provide their perspectives on both the market and how cargo insurance may help in the supply chain issues dominating the news headlines.

Download the Guide for our 2022 market forecast >>

Having a knowledgeable and trusted insurance broker to help you navigate the complexities of risk is critical in all types of insurance markets. Read more for our insight and projections for the market in 2022.

Commercial Lines Forecast for 2022

There is a noticeable shift in the wind in favor of insurance buyers in 2022, and we are optimistic for many segments of the commercial lines market in the coming year.

This time last year, COVID-19 was on everyone’s minds because vaccines had not yet been implemented, and most of the global economy was in lockdown. COVID-19 is still an issue, and variants have led many to expect that COVID-19 is here to stay. The sentiment, at least in the insurance industry, has shifted from uncertainty to adaptation.

Our View of 2022: Optimism, with Pockets of Upward Trends

Our insurers’ optimism around continued rate increases may be wishful thinking. The Q2 2021 CIAB survey reported that average commercial lines rate increases in the quarter were 8.3%, down from 10.0% in Q1 2021.

The magnitude of rate increases for the average commercial lines rates has lessened since Q4 2020.

By-Line Second Quarter 2021 Rate Changes Ranged from +.3 to +17.4%

Our view of 2022 is that rate increases will flatten throughout the year, particularly in property and casualty. New market entrants increase competition, which should drive rates lower. High-quality risks may even see some rate decreases by late 2022.

Regardless of whether rates are rising or falling, there are certain best practices insurance buyers can follow to improve renewal results:

  1. Start early and establish relationships with your underwriters.
  2. Work with your broker to gather detailed information about your risk. This will help differentiate you in the market.
  3. Address loss control recommendations and discuss these efforts with your underwriters. Proactive loss control demonstrates to underwriters a commitment to risk mitigation.

Property Update: A Cautious but Optimistic Market

The commercial property insurance market in 2022 could see increased competition among renewals, as additional capacity continues to enter the market. Carriers are developing creative solutions to address an ever-changing risk landscape, offering more capacity, and coverage is stabilizing.

Yes, risk increases daily, and we’re seeing the impact of increased loss activity. However, the commercial property market continues to move in a positive direction. The average property rate increase YTD2021 is 8%. Additionally, we have achieved rate reductions on multiple renewals by creatively restructuring programs and introducing new capacity. We expect even better results in 2022 for insureds that continue to prioritize risk improvement.

New capital will continue to have a favorable impact on commercial property insurance renewals. For the first time since 2017, underwriters have new business goals, which will generate competition in 2022. In addition, clients’ risk mitigation efforts of the past four years are bearing fruit, with incumbent carriers looking to expand capacity and offer more favorable terms and conditions.

Commercial Property Rate Increases are Slowing

Casualty Renewal Strategy for 2022

The outlook for 2022 looks like it will be a difficult environment for most lines of coverage, with some notable exceptions. Auto, general, and umbrella liability rates remain strained by increasing claims costs and poor underwriting results. By contrast, workers’ compensation and high excess casualty are stabilizing and attracting reinvigorated insurer competition.

Workers’ Compensation

Heading into last year, concerns that huge numbers of workers would contract COVID-19 while on the job terrified insurers. Underwriters sought modest rate increases for the first time in five years.

What’s clear now is that workers’ compensation (WC) remains the most competitive and best-performing major property and casualty insurance line. Insurers’ ability to drive rate increases is minimal. According to the Council of Insurance Agents and Brokers Q2 2021 Rate Survey, rates increased by just 0.3% in the beginning of 2021.

Rate Forecast for 2022

Risk managers have an opportunity to use their workers’ compensation renewal as a stabilizing force for their overall insurance program. Fueled by solid underwriting results and recent increases in investment income, insurers are competing vigorously to write workers’ compensation coverage for well-managed risks.

Organizations with strong employee health and safety programs, comprehensive COVID-19 controls, and proactive, data-driven claims management strategies can expect two perks: They’re able to both negotiate favorable WC rates and leverage the WC program to drive insurer competition for tougher lines of coverage—namely general/products liability, commercial auto, and umbrella liability. We anticipate a rate range of -5% to +3%.

Commercial Auto

Providing auto liability coverage remains a risky proposition for US insurers. While the volume of auto claims declined 25.6% during 2020 as the pandemic limited driving activity for many businesses, it’s a bit misleading because the average payments for auto accidents increased 14.3% over that period. With auto repair and medical treatment costs still on the rise, insurers are concerned that auto losses will surge once driving activity rebounds to pre-pandemic levels. Insurers obtained a 9% average rate increase for auto in the first quarter of 2021.

We anticipate modestly slower rate increases of +6% to +10% for auto as insurers creep toward profitability.

Commercial General Liability

The continued forces of increasing litigation rates, jury awards, and settlement amounts continue to drive up rates for primary general and products liability. Per the CIAB survey, rates rose 6% on average in the first half of 2021, though increases were steeper for businesses in high-hazard industries: manufacturers of tough products (e.g., kids goods, auto or medical parts, chemicals), habitational real estate owners and operators, sharing economy firms (on-demand delivery or services, home sharing), and companies with material wildfire exposure (utilities and forestry concerns).

We anticipate rates of +4% to +9%.

Umbrella and Excess Liability

The excess casualty market can be characterized by a mix of both good news and bad news.

The bad news: The frequency of severe ($15 million or greater) liability losses is expected to continue to grow as a result of social inflation, which is the phenomenon of increasing claims costs due to changing societal factors, such as legal advertising, litigation financing, the appeal of class action lawsuits, and growing public distrust of corporations.

Westfleet Advisors estimates that litigation financing, in which private investors fund claimants’ litigation against corporations, grew 18% to over $11 billion in 2020.

A Woodruff Sawyer analysis of Advisen large auto liability claims data illustrates the impact of social inflation. We looked at four-year windows in order to eliminate the impact of year-to-year variability. The number of auto liability claims with settlement and judgment value of $15 million or greater increased 168% from 35 for the 2008–2011 window to 94 from 2016–2019.

Advisen Data Shows Catastrophic Auto Liability Claims On the Rise Analysis considers US-only Auto Liability cases with recorded settlement or award value greater than $15 million. Losses are sorted by year of settlement or judgment.

The modestly good news on excess casualty: At least $100 million of new underwriting capacity has entered the US casualty market, chasing newly increased rates and driving competition for layers of excess towers above $25 million.

How should a strategic insurance buyer approach the tumultuous excess casualty market? Find out in the Guide.

For large companies (revenues of $1 billion), we anticipate rates of +10% to +20%. For small commercial and middle-market firms (less than $1 billion+), we anticipate rates of +15% to +30%.

Revisiting Workers’ Compensation Best Practices and Ergonomics

Most employers have experienced some disruption in their workforce and the ways that jobs are done and how safety programs function due to COVID-19. As you review injury trends and costs from this past year, you will likely see some familiar categories in those losses. Redeveloping or maintaining a focus on those exposures causing loss is important for the future of your programs and their performance, both now and post-pandemic.

Common Workforce Disruptions and Their Solutions:

  • Fleet: Motor vehicle accidents are still the number one cause of work-related fatalities. Telematics, motor vehicle report (MVR) monitoring, strict electronic device policies, and other controls are, in some cases, being looked at as basic controls.
  • Hazardous Energy Control / LOTO and Guarding: Some shifts have run shorthanded, and production demands have been high on those continuing to produce goods. These pressures can result in shortcuts, lack of training, and a less formal safety effort around machinery. This is a good time to do an audit of your controls around machine-based exposures.
  • Ergonomics: Ergonomic-based injuries are among the top drivers of workers’ compensation losses for most employers. Investing in engineering controls, ergonomic committees, and leveraging ergonomic expertise can yield larger dividends in this atmosphere.
  • Safety Meetings: If your safety committee meetings have been on hold or focused solely on COVID-19 prevention, you may wish to conduct a trending and mitigation exercise to reinvigorate loss prevention in other areas.
  • Safety Observations: With many employers facing staffing shortages, safety observation programs have suffered in some instances. If you utilize observations to help drive losses down, be sure they are up to date or, if needed, restarted.
  • Post-Injury / Incident Investigations: If you have contact-tracing fatigue, you may feel like this topic is a bit torturous—but it is a necessary measure. If your post-injury investigation process has been pushed aside or is a bit behind, be sure it is brought back online. There is no better way to add detail to high-level trends than to dig into your actual losses.
  • Safety Policy and Procedure Review: Periodic review of safety policies and procedures is something many companies do during slower times of the year. If the pandemic has kept your safety team and/or committee busy, you may find that general safety policy and procedure reviews have fallen behind. Keeping your policies up to date and relevant is one key to staying in compliance and preventing injuries.

Download the Guide for our 2022 market forecast >>

Firming Rate Conditions Persist for Middle-Market Companies

Low interest rates continue, with investment yields dropping 30 basis points from 2019 to 2020. Despite concerns about inflation, interest rates are likely to remain at historically low levels that don’t generate meaningful investment portfolio returns for insurers. Low interest rates pressure carrier investment income as policyholder premiums are invested. This means carriers must make more profit from underwriting. The impact on policyholders are higher rates, lower capacity, and increased deductibles.

We expect that carriers will need to earn an adequate return from their books of business, which results in firming prices for middle-market buyers. Volatile investment markets pressure both fixed income and non-fixed income portfolio returns for carriers, which will further exacerbate this trend.

Weather-related losses that aren’t connected to natural catastrophes continue in both severity and frequency.

The COVID-19 pandemic also continues to impact firms across the US middle market.

Graph - 2022 Direct Premium Growth Estimates by Line (Contemplates Rate and Exposure)

Take Action Now: Five key questions to consider for 2022

  • How is your current broker increasing the value of your business?
  • Are you sure that you are properly covered?
  • What would happen if your largest location were shut down?
  • When was the last time your program was benchmarked or reviewed?
  • How are you using data and analytics to reduce your total cost of risk?

What Do Middle Market Underwriters Expect in 2022?

Our middle-markets premium growth estimates are based on what we have experienced in recent insurance placements and what our brokers are hearing from underwriters.

For this Guide, we recently surveyed underwriters specializing in middle markets at 12 insurers to learn whether our experience matches the underwriters’ view of the market. Here are a few highlights.

Get the full insight into underwriter sentiment in the Guide.

  • Expect premium increases in auto insurance and workers’ comp.
  • The majority of underwriters expect general liability premiums to remain flat or decrease by no more than 5%
  • The majority of underwriters said coverage will either stay the same or broaden.

Ask the Underwriter: Cargo Market

We now find ourselves in a “stable,” not “soft,” marine and cargo market. Underwriting discipline and rating adequacy continues to be a focus, but London insurers remain committed to supporting existing and new clients alike, ensuring they build insurance programs tailored to their needs.

As Head of Marine & Cargo at GAWS of London, Will Ripley interviewed cargo insurers at two established London cargo syndicates and two new syndicates to get their views on the market and what insurance buyers should expect in 2022.

Should no significant CAT losses further affect the cargo market, 2022 looks set to offer far more stability for insurance buyers. Insureds have received challenging messaging and renewals, but the remediation looks to have brought stability and longevity to the market. New capacity entering the market, with the ability to add value and lead business, will only have a positive effect for buyers.

The stability will be most evident to those clients who have performed well, value relationships, and have an openness to sharing data. The market will most likely continue to see smaller rate rises than previous years, but those better-performing clients will be positively selected for by carriers, as insurers look to hold market share on well-performing business.

We Untangle, Advise, and Solve for You.

Property & Casualty insurance does not need to be a mystery. With expertise in loss control, risk mitigation, alternative risk funding, and cost-of-risk analysis, Woodruff Sawyer can help you navigate the complexities of insurance, ensuring that your programs are well-priced and carefully tailored.

For more analysis and predictions for the market in 2022, get the full P&C Looking Ahead Guide.

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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