“When will this market end” is a question business owners and executives often ask me. Their frustration is justified, given 25 quarters of increasing insurance premiums and the financial toll the hard insurance market continues to take on businesses of all sizes. While questions about high costs top the list of concerns, many organizations are still wrestling with the challenges of stringent underwriting, restricted policy wording, less capacity for needed limits of coverage, and few insurers competing for business.

Where we are now

My article, If It’s 8 O’clock, It Must Be A Hard Market suggests visualizing the insurance market cycle as the hours on a clock. Five years ago, the market moved from 6 o’clock to 7 o’clock. Since then, 8 o’clock and 9 o’clock ticked by. We are now around 10:30. Insurance companies have moved from an increased market share mindset to an emphasis on underwriting profitability.

This is the fourth hard market I’ve experienced. Each has similar characteristics, but this one differs in several ways:

• This market is longer in duration than any previous hard market cycles.

• More nuanced – previously, all lines were affected. In this hard market, Workers’ Compensation rates have decreased.

• Increases are not in lockstep. For example, property insurance is having a cycle within a cycle and entering a new hard market.

Overview of the current market

Based on Q1 2023 results and other available industry data, here’s what I am seeing:

• The frequency and severity of major catastrophes continue to stress the industry. Last year, total insured losses globally were $125 billion compared to $121 billion in 2021.

• The chief economist for the Insurance Information Institute projects long-term growth will remain below 2% and long-term inflation above 2.5%. This will likely lead insurers to pursue rate increases to keep pace with losses.

• Overall, Property and Casualty insurers are in a stronger financial position due to improving combined ratios and investment earnings. As a result, rate increases for most lines of business are moderating – trend analysts expect to continue at least through 2024.

• U.S. commercial insurance pricing showed a modest 4% increase in the first quarter.  

• In most classes, across all lines, there is a two-tier market. Good risks are seeing favorable capacity and much smaller increases, while poor risks, challenged industries, natural catastrophe-affected risks, and those with poor loss history or with lower primary attachment points are contending with double-digit increases.

• January 2023 renewals mark a turning point for the reinsurance market, signaling a new reality for buyers. It was the most challenging January 1 renewal in a generation as the reinsurance market underwent a fundamental shift in pricing and risk appetite, especially for property catastrophe risk.

• Cyber insurance continues to be an outlier. Until early 2021, Cyber Risk was a small but growing line of business experiencing 4% to 6% rate increases. Then the effects of ransomware and fraudulent funds transfers that proliferated during COVID pushed rates up 50% to 200% depending on the type of industry and level of internal security controls. Conditions are improving. The most current reporting shows average rate increases in the 15% – 30% range.

• National Workers’ Compensation rates continue to move downward. But this may be coming to an end for California businesses. After eight years of successive Workers’ Compensation rate reductions, from a high of $2.97 per $100 in payroll 2014 to $1.45 at the end of 2022, recent information released by the California Workers’ Compensation Insurance Rating Bureau indicates this trend could end when advisory rates are filed effective this September 1.

• Buyers of Directors & Officers’ insurance are seeing some relief. Rates for private companies and not-for-profits are averaging decreases in the 10% -15% range. For publicly traded companies, rates range from flat to 10% decreases.

When will it end?

The characteristics to look for are when the clock hands hit 11 o’clock. For this to happen, insurers must achieve a healthy combined ratio – the ratio of claims and overhead versus premiums collected. While some insurers are in a stronger position, many still fall short of the loss ratios and investment income needed to offset underwriting losses. Economic forces outside insurers’ control – inflation and recession – will play a key role in determining how long the market takes to move forward.  

Managing the market

Talk to your broker. There are strategies you can explore to help reduce the financial impact of

current conditions on your business. Learn more Are-you-an-investor-or-trader/. Also, you can find best practices for navigating the market and industry-specific market outlook information in Alera Group’s 2023 Property and Casualty Market Outlook.

Stephen Paulin

Workers Compensation Practice Leader & Cyber Risk Specialist

Steve has over 35 years of experience helping businesses reach their profit goals by improving risk management outcomes that optimize the insurance program’s financial efficiency to produce better business performance. Using his strategic, long-term approach, exacting research and diagnostic process, Steve delivers measurable results to help organizations capture more profit while being safer with increased productivity.

He has extensive experience working with publicly held entities and organizations with national and international operations. He brings this expertise to his privately held clients and specializes in structuring innovative workers’ compensation large deductible placements and captive insurance formations, and holistic cyber risk programs

While highly proficient in his knowledge of all business insurance policies, Steve has the distinction of honing his cyber risk expertise over the past 20 years to become highly regarded for his insight and solutions to this quickly expanding and evolving area of risk. During this time, Steve has been advising clients on implementing his holistic cybersecurity best practices and insurance protection approach. Ultimately, his clients are viewed by cyber insurers as preferred risks, thereby obtaining programs with better terms and conditions and  appropriate limits of coverage at the most cost-effective premium.

Steve is a prolific writer on many insurance-related topics. He has authored and contributed his thought leadership to Business Insurance, Insurance Journal and California Workers’ Compensation Enquirer, among others. He is a Certified Insurance Counselor (CIC). A graduate of the USC Marshall School of Business, Steve continues his involvement with the university as a member of Marshall Partners, an Emeritus Member of the USC Alumni Association Board of Governors and active in the Swim With Mike Foundation. Steve is a 28-year Vistage member, serves on the Association for Corporate Growth Orange County Board of Directors, and is an active community volunteer. He is a founding member of The Lott IMPACT Foundation®, which annually presents The Ronnie Lott IMPACT Trophy to the college football defensive IMPACT player of the year. IMPACT is an acronym for Integrity, Maturity, Performance, Academics, Community, and Tenacity.

You can access additional thought pieces here, https://www.orionrisk.com/news/

You can reach Steve at: SPaulin@orionrisk.com.