HARD MARKET? IT DEPENDS

While the market is firming, capacity exists, but at a price

By Lori Widmer

How hard is today’s insurance market? It’s an answer that varies depending on whom you talk to.

According to the Deloitte 2021 Insurance Outlook, expectations within the industry were that the pandemic would have an ongoing impact on some property/casualty lines; workers compensation insurance sales in particular were expected to feel long-lasting effects of the job losses caused by the pandemic.

At first, that seemed to be the case. NCCI data does show a net written premium decrease in 2020, with private carriers writing $38 billion. That’s a decline over 2019 premiums of $42 billion, all attributable to the decline in employment, the data reveal.

And yet by September 2020, job recovery was strong, NCCI data show, with the employment gap shrinking considerably.

That type of specificity among the lines of business is why Kevin Johnson calls this hard market more of a nuanced one. “It’s probably at least firm across the board, and that will vary by line and class,” says Johnson, president of Insurance Programs for Munich Re Specialty Insurance.

Johnson says the hardest segments currently include “property, CAT, unsupported excess—high excess layers.” He says, too, that D&O, in particular public company D&O, is also experiencing hard market conditions. “Based on the industry sophistication, carrier sophistication, and MGA sophistication, having a blanket hard or soft market at this point is probably less likely than this element of nuances in the market.”

Chris Leisz, president of RPS Signature Programs, a unit of Risk Placement Services, an Arthur J. Gallagher Company, says from a program administrator (PA) perspective, his program leaders are reporting the same type of segmented market hardening. When asked their opinion of the market, the PAs’ answers vary depending on their industry or line of business, he says. For example, workers comp program administrators were reporting flat to slight increases, while PAs in high hazard property were reporting hard market conditions.

“One of the unique things in this market was the fact that so many of the package lines were impacted at the same time,” Leisz says. “We saw coming into 2019 actual rate increases starting to come up in property and GL. That greatly accelerated into 20.”

That’s where Leisz says insurance providers got creative. “On select coverages within our offerings, although maybe we’d be able to provide a continuous solution for insurance, there may be aspects of that we will no longer able to provide them.”

That could be one reason why net underwriting income and combined ratios continue to improve. An AM Best Special Report for 2020 shows that net underwriting income increased 68%, and the line saw a decrease in combined ratio over 2019.

“Based on the industry sophistication, carrier sophistication, and MGA sophistication, having a blanket hard or soft market at this point is probably less likely than this element of nuances in the market.”

—Kevin Johnson
President, Insurance Programs
Munich Re Specialty Insurance

Pete Chandler, president and CEO of reinsurance broker BMS, says that while the market is firming, capacity is there, but at a price. Depending on location, that capacity, he says, could be difficult to locate. “If you’re a home- owner in California near a brush- or wilderness-exposed area, you probably would be very challenged right now to find a new insurance policy,” he says.

Chandler says that reinsurers are “going back to those areas where they’re most comfortable,” to areas where there is ample data. “Everything is going back to data these days, and where there’s ample data available, regardless almost of the story it tells.”

That story is one of increasing rates. That’s caused some buyers to look for alternative markets. “The flight to non-admitted (markets) has been pretty amazing,” Chandler says. Does that mean insurers are utilizing the reinsurance market with greater frequency? “It depends,” he observes, noting that, while rates are increasing, they are exceeding loss costs, which is allowing insurers to take on new lines of business.

Rates are showing signs of flattening, says Johnson, which may mean that for some segments, this could be a brief reprieve. “The big question for me is how sustainable will those rate levels be if they truly do start to flatten out over Q1 and Q2? And again, in some segments, it’s probably still not enough while others may be getting risk-adequate pricing.”

What may impact rates more, he says, are the casualty dynamics that have dominated the news cycles for the last three years. “We actually could be in a period of false positives in terms of casualty tort dynamics: litigation dragging out [for] extended periods of foreclosure. I think that’s something that comes to bear further into 2021 and will likely cause these market conditions to remain for some period of time.”

For Chandler the current market defies expectations. “It’s hard to imagine that we’re still in this low interest rate environment, when there’s no doubt that both social and medical inflation are real.”

For the rest of 2021, Leisz foresees rate inflation in some lines, deceleration in others. Going into 2020, he says, social inflation was high, and he doesn’t see that changing as more courts open up. “We just went through a whole year of civil unrest, as well. Particularly in the GL lines, we’re looking at how that will impact our exposures, in addition to what we’re already dealing with.”

The property market has been a challenge, but Chandler believes the industry has responded wisely and thoughtfully. He says the various stakeholders have joined forces on each pressing issue within the P-C market, studied the potential issues, and modified their approach to come up with efficient solutions for their clients.

Leisz says going forward, he sees more of that type of strategic thinking going into the underwriting process. Better performing businesses or better performing portfolios will be impacted less by large-scale events or social inflation. And insurers are working hard to improve performance and grow business, the experts say.

With insurer terms and conditions more laser focused than ever, Chandler says that the market is well-prepared for claims and rate increases. “The market is getting more and more disciplined. There are things folks want to make sure they’re getting right. And we all continue to learn even this many years into our industry’s lifecycle.”

Editor’s note: Quotes are based on comments shared in a Target Markets Program Administrators Association webinar earlier this year and have been edited/paraphrased/amended for flow and clarity.

The author

Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.