Two reports highlight increasing premiums and tightening terms

Two reports of interest as insights into current trading conditions:

1. The Council for Insurance Agents and Brokers ("CIAB") September report is available in full here

The Executive Summary states:

• "Evidence the market continued to harden was apparent in Q3 2020, with premiums increasing by an average of 11.7% across all-sized accounts, marking the 12th consecutive quarter of increased premium pricing across all-sized accounts. As with the previous quarter, the impact was most apparent for large and medium-sized accounts, which recorded increases of 15.3% and 12.7%, respectively."
  
• "Premiums continued to increase for all lines of business in Q3 2020, Workers Compensation included. Umbrella and D&O premiums increased by far the most in Q3 2020, at 22.9% and 16.1%, respectively, followed by Commercial Property with an increase of 14.2%."
• "Underwriting capacity was down for the most troubled lines in Q3 2020, with 90% of respondents reporting capacity was down for Umbrella, nearly 60% of which said capacity had significantly decreased."
• "Results from COVID-19 related questions suggested the pandemic’s impact was still being felt in Q3 2020. Most respondents said the pandemic impacted pricing, availability of coverage, renewals and underwriting
  trends. They also reported increased claims activity for Business Interruption and Workers Compensation."

"Social inflation" is mentioned - besides Covd-19 - as a key driver in premium increases. This term is used to cover the fact that US insurers are being forced to pay very much higher claims as a result of US juries becoming increasingly anti-corporate and awarding higher claims and compensation awards particularly against large corporations. This has affected the medical malpractice, D&O and general liability classes. Another factor mentioned behind the continuing higher prices is the reduced reinsurance capacity available to US insurers.

2. WTW's September "Insurance Marketplace Realities" report is available in full here.

The introduction to the report considers why premiums are rising so steeply and in summary these are listed as:

• the natural catastrophes of 2017 and 2018,
  
• years of declining prices,
  
• historically low interest rates,
  
• the significant withdrawal of capacity in response to changes in risk exposures, and
  
• increasing losses from natural catastrophes and man-made property damage losses and in the severity of liability losses.
  

WTW's report explains that rates are also having to be increased - despite the high level of insurers' capital - because "....the absolute, inflation-adjusted size of insured losses — property, business interruption, umbrella and D&O particularly — have increased faster than the capital base of the industry." WTW's report says this is a hard market similar to the capacity crunch experienced in the mid-1980's.

In the major US classes of business, WTW predicts:

1. Property - WTW's predictions are for continued hardening into 2021 with +15% to +25% for "non-challenged occupancies";
2. Casualty - the commercial liability market remains hard, with umbrella liability risks expected to see between +30% to +50% depending on their occupational hazard; and excess liability between +75% to +150% depending upon occupational hazard.