NAVIGATING STORMY WATERS IN INSURANCE
Understanding the currents is key
By Mark Englert
Amid the often-volatile landscape of property and casualty insurance, Alera Group’s 2024 Property and Casualty Market Outlook offers not only a much-needed insider’s look at trends and challenges, but also a straightforward narrative of an industry navigating the crossfire of economic shifts, climate changes and evolving societal norms.
It’s the story of a market in flux. While commercial insurance is experiencing greater stability, personal lines, particularly homeowners and auto insurance, face myriad challenges. The P-C waters are choppy, and understanding the currents is key.
While commercial insurance is experiencing greater
stability, personal lines, particularly homeowners
and auto insurance, face myriad challenges.
Ripples in pricing dynamics
Alera Group’s P-C Market Outlook sets the stage by forecasting price increases across most lines of coverage.
Examining the numbers reveals a complex story—one of insurers striving for profitability in an economy where challenges abound. The most substantial rate increases are anticipated in commercial property, commercial auto, personal auto and homeowners, highlighting the potential economic burden on policyholders.
Along the same vein, industry capacity varies.
More than 20% of respondents to an industry survey that Alera Group conducted in the third quarter of 2023 foresaw capacity increasing in public and private directors and officers (D&O) liability, environmental liability, surety bonds and workers compensation. Conversely, the same percentage foresaw capacity decreasing in commercial auto, commercial property, environmental liability, medical malpractice and personal lines/private risk.
Amid this evolving landscape, underwriters must be vigilant, yet flexible where warranted. The Market Outlook reveals a shift towards selectivity, with over 20% of survey respondents expecting stricter standards in commercial auto, medical malpractice, and umbrella/excess liability.
Simultaneously, a softening is anticipated in private and public D&O, employment practices liability, surety bonds, and workers compensation. The most successful risk management and insurance programs will combine caution and the agility to seize on opportunity.
As the industry maintains its quest for profitability, rate increases and stricter underwriting and higher investment returns are the principal tools insurers are using to strike a balance between profit and sustainability.
Inflation’s unyielding grasp
As in most sectors of the economy, inflation has made its impact on property and casualty insurance, driving up claim costs on multiple fronts, including building materials, replacement parts, labor, medical expenses, attorney fees, and settlement amounts.
This economic pressure, coupled with the surge in weather-created and other natural-catastrophe-related claims, has created a perfect storm of challenges that insurers must weather in the coming year.
In 2023, in the United States, we witnessed 28 confirmed disasters of
$1 billion or more—the highest number of such costly catastrophic weather events in more than four decades of tracking, according to the National Oceanic and Atmospheric Administration (NOAA). The implications of these incidents are far-reaching, as insurers grapple with the aftermath.
Homeowners insurance availability is predicted to be largely contingent on reinsurers’ willingness to support insurance companies with terms and pricing they can pass on to homeowners. The insurance industry should anticipate difficulty in the private client or high-net-worth sector, especially for risks in catastrophe-prone areas.
The market is moving toward percentage-based wind/hail deductibles, away from replacement coverages and toward proportional reimbursement for roof damages, and toward requiring full replacement value for property coverages.
Additionally, property insurance, a cornerstone of coverage, has become a paradox. While rates climb in response to extreme weather events and escalating rebuilding costs, insurers are requiring up-to-date property values, leading to higher premiums for policyholders. The result is a delicate balance between coverage and cost.
A broader horizon
Businesses should respond to the shifting P-C landscape by considering alternative approaches. They should view brokers not as intermediaries but as partners with whom they can collaborate in exploring innovative options to establish stability amid turbulent times.
Alera Group’s P-C Market Outlook outlines the rationale for such innovation, stressing the importance of brokers as strategic partners and emphasizing the need for brokers to go beyond outdated roles in developing risk management solutions tailored to individual business needs.
Charting the course forward
As market conditions continue to evolve, businesses should pay attention to the fine print. Recognizing that policy terms and conditions are ever-shifting is key to understanding the financial implications. A vigilant eye on changes in language, sub-limits, deductibles and exclusions is paramount.
That fine print in your policy is no mere technicality; understanding the details is a critical aspect of risk management.
So, know that a sound insurance and risk management program isn’t just about coverage but is also about resilience. Businesses with a strong risk management approach are not only better positioned to mitigate losses but also to negotiate favorable terms with insurers.
Such a holistic approach emphasizes the need for businesses to proactively engage in loss control and safety management to enhance their overall insurability.
As we move forward in 2024, we should think of tools such as Alera Group’s Outlook as more than just reports on an industry in transition and a market in flux. As savvy businesses plot their course for the future, they’ll find not only challenges but also opportunities, not only risks but also long-term strategies.
Having an expert guide and a steady hand on the wheel can only ease the journey.
The author
Mark Englert has more than 30 years of insurance industry and related experience. As executive vice president and property and casualty leader for Alera Group, he focuses on the development and implementation of strategic initiatives for the company’s property and casualty business, and works closely with its offices across the nation to enhance client experiences, build out new solutions and coordinate resources to improve client outcomes.
