RESPONDING TO MARKET TRENDS & GLOBAL RISKS
MARC D. LEONE, ESQ.
Vice President
LUKE A. FOLEY
ARM, Vice President
We’ve been in a hard insurance market for the last few years, with nearly every commercial segment experiencing ongoing rate increases and the impact of international disruptions. We’re seeing signs of softening in some areas, even as our clients still must contend with challenges such as persistent inflation and ongoing supply chain disruptions. Here are the trends we see in key sectors:
Property
Property is experiencing more upward pressure as we close out the year, although the market is softening for businesses without coastal properties or hazardous risk exposure. According to the Commercial Property/Casualty Market Index conducted by the Council for Insurance Agents & Brokers (CIAB), Q3 2022 saw average premium increases of 11.2%, compared to 8.3% in Q2 2022. The rate increase is likely due in part to natural disasters in that quarter, including wildfires and Hurricane Ian. However, we’ve also seen encouraging signs of market stabilization throughout this year, along with opportunities to negotiate better terms for clients.
Workers' Compensation
Workers’ compensation remains one of the softest areas of the market, with a decrease of 0.7% in premiums for Q3 2022, according to the CIAB. Strong accounts can look for flat or even lowered rates, although recent inflation has introduced some nuances into the market.
Liability Coverage
Liability coverage has experienced slightly reduced rate increases for standard, non-professional liability insurance this year. The CIAB report showed premiums increased by 5.7% in Q3 2022 and hovered around 4% for Q1 and Q2 2022, compared to quarterly rate increases of around 6% last year.
Commercial Auto
Commercial auto is still experiencing upward pressure, as it has been for years — premiums rose by 7.6% in Q3 2022, per the CIAB — but it’s currently less acute, with rate increases primarily due to inflation.
Cyber Liability
Cyber liability continues to be a challenging market in today’s world, with extremely strict underwriting, limited terms and comprehensive risk management requirements. While we expect this trend to continue, there may be signs of pricing relief: The CIAB reports that average premiums rose by 20.3% in Q3 2022 — a significant decrease from the 34.3% increase we saw in Q4 2021.
Excess Liability
Excess liability has experienced some of the highest rate increases this year, partly due to increasingly significant losses from lighter risk exposures along with the rising cost and frequency of litigation. Average premiums rose by 11.3% in Q3 2022, per the CIAB, marking nearly three straight years of quarterly rate increases above 10%.
Captive Insurance
Captive insurance has become especially important for companies looking to take control within the hard insurance market. From 2020 to 2021, there was a 15% increase in the number of captives formed or domiciled in the United States, according to research by Business Insider. This figure does not account for cell captives, offshore captive formations or new risks financed in existing captives (such as property, excess or cyber), which would show an even greater increase in captive utilization.
Of course, fluctuating economic conditions are still impacting the insurance market and affecting clients across sectors. Inflation and a tight labor market are increasing wages and prices, creating a misleading picture of risk exposure for workers’ compensation and liability coverage. The calculation for workers’ compensation is directly tied to total payroll expenses, which means that many businesses are seeing price increases even if their number of employees has stayed flat or declined over the last year. This is where a proactive, attentive broker has room to negotiate, refusing the 5-7% price increase because the actual risk to the insurer — in terms of number of employees — may not have risen the way the inflated payrolls suggest. Similarly, liability policies are typically rated based on overall revenue — which may not accurately represent the true exposure in today’s inflationary conditions. Many businesses may have an increased total revenue because of higher pricing for their goods and services caused by inflated supply costs and higher wages. As with workers’ compensation, a highly engaged broker can help avoid price increases that are not related to an increased risk exposure. The global supply chain is another unique factor that is impacting clients’ risks and coverage across industries. Pandemic-related disruptions revealed just how interconnected our world is, from the upended global shipping routes to the outsized impact of key suppliers. Given current political and economic headwinds, we expect supply chain disruptions to continue. The last few years have clearly demonstrated how critical it is to thoroughly analyze the entire supply chain to identify vulnerabilities and mitigate risk. At Graham Company, we’re here to dive into the weeds and help clients identify comprehensive risk management strategies and creative insurance options that maximize value. That’s why captive insurance, where a single business or multiple organizations develop their own insurance company, is playing an important role in helping clients mitigate the unique disruptions that are increasingly common yet not effectively addressed by traditional insurance.
Businesses will always have new challenges to face and new risks to consider — and that’s where Graham is proud to step in as a true strategic partner. Through our P2RIME® process, which leverages next-generation technology and clients’ unique data to build a holistic risk management plan, we help our clients take every action step needed to mitigate future risks. Then, we work closely with underwriters so they can understand why our clients present a far more favorable risk that warrant offers containing the broadest available coverage at the most aggressive rates.
This commitment to risk mitigation and claims prevention is what sets a business up for success in any insurance market but especially in a challenging market — and, most importantly, protects what matters most – your people and your bottom line.