Insurance Market Rate Trends, challenges and solutions

USI Insurance Services’ 2023 Commercial P&C Market Outlook

by: USI and its National Team

PROPERTY

Anticipated Market Trends for 2023

Challenges will continue in 2023 for risks with significant exposure to wildfire, named storm, convective storm and flood. Certain occupancies like food, habitational, wood products, recycling and frame builder’s risk projects will continue to face pressure to improve risk quality while experiencing rate increases, limited capacity and increased deductibles.

Reinsurance treaty renewals on January 1, 2023, are expected to finalize at rate increases of 20% or more with a limited supply available due to losses, increased exposure basis from raw material costs and supply-chain disruptions along with increased demand from insurers. Renewals effective in the second half of 2023 may experience limited supply of necessary capacity from their incumbents as portfolio catastrophic event (CAT) aggregates are depleted with little to no opportunity to replace it. Insureds will continue to face difficult decisions balancing risk tolerance, third- party insurance requirements and budgetary restrictions.

As these challenges continue, there are some additional trends starting to impact insureds across the spectrum, regardless of occupancy or risk profile.

REAL ESTATE

Anticipated Market Trends for 2023

Cyber: This prolonged macro trend remains top of mind as hackers continue to infiltrate systems and cause financial damage to their victims. Real estate companies have traditionally not purchased cyber coverage, but the take-up rate for coverage has increased significantly over the past few years. Climate Related Risk: Ian was categorized as the fourth strongest storm to ever hit Florida, and caused considerable damage. Since
2017, the U.S. has been impacted by 17 hurricanes/tropical storms, and insurance carriers have continued to reduce needed capacity in hard-hit areas. There will be prolonged pressure on pricing, deductibles and a strain on capacity with the frequency and severity of these storms.

Environmental, Social and Governance (ESG): The above- mentioned trends, including climate risk and data security risks, combined with increased regulatory pressures and shifts in social principles, represent increasing risks for real estate investors. The current economic environment has affected real estate companies’ exposure to ESG risks and their ability to manage them, as they face increasing and complicated investor scrutiny.

Deferred Maintenance: With many real estate owners and managers facing lower post-pandemic occupancy levels, there may be less maintenance needed. Deferred maintenance may lead to asset deterioration and losses related to infrastructure such as HVAC, electrical, and plumbing. This especially holds true for older assets
and can also impact the “health” of the building. Carriers are closely reviewing and monitoring maintenance plans and procedures to ensure adequate money and resources are prioritized to reduce potential losses.

CONSTRUCTION

Anticipated Market Trends for 2023

The following coverage updates go beyond those listed in USI’s 2022 Commercial P&C Market Outlook Mid-Year Addendum and may not include all lines of business.

General Liability

The skilled labor shortage in all industry segments remains the single most challenging issue for contractors, according to the Associated General Contractors of America, Inc. (AGC) and FMI Consulting in their annually published “Risk Management Survey.” Exacerbating the issue, injury rates for employees within the first year of work account for 48% of the injuries and 52% of the costs, according to Travelers Injury Impact report which tracked 1.5 million workers’ compensation claims submitted from 2015 through 2019.

As the industry tries to navigate this challenge while hiring an unprecedented number of new workers, additional emphasis on safety and risk mitigation strategies will be key. Medical costs due to continued inflationary pressures continue to rise, and loss trends mean employers, now more than ever, need to create, implement, and execute effective and innovative safety/risk control programs to keep workers’ compensation and experience modification rates from getting out of control. Deterioration in workers’ compensation portfolios are starting to make carriers nervous, giving rise to potential rate increases in the future.

Umbrella/Excess

Price increases continue to stabilize for the general construction market depending on scope of work and geographic location. InsureTech options are becoming more attractive to clients because of better pricing for adoption technology tools to manage risk. 2023 will continue to see more supported umbrellas as a solution versus unsupported. Buffer layers and higher underlying limits are still creative options to keep costs under control.

Cyber

Cyber threats continue to increase against contractors of all shapes and sizes. As with the last outlook, an emphasis on cyber hygiene, which includes a detailed outline of a company’s workplace cyber policies, incident response planning, employee training, and security software capabilities, is paramount for risk mitigation as well as access to appropriate cyber coverage.

Owner-/Contractor-Controlled Insurance Programs
(OCIPs/CCIPs)

Because of supply chain delays, labor shortage and volatility in material costs, project durations are extending beyond what treaty or carriers can afford. This situation is creating challenges with carrier availability and capacity for certain types of projects.

Builder’s Risk/Course of Construction

Risk mitigation protocols like water sensors, site security, fire mitigation and other technologies are now a part of a standard operating procedure for a builder’s risk submission regardless of construction type or geographic location. Capacity continues to be strained for coastal or wildfire exposed projects and rates continue to increase for wood frame projects. Cross laminate timber/mass timber projects continue to rise due to supply chain woes and material cost increases, and carriers are starting to embrace and adopt these technologies with offerings for this type of work. Project delays persist and reinsurance costs are expected to continue to increase due to the number or large insured natural disasters.

Surety

As with the last outlook, the surety industry was profitable this year and backlogs as healthy as pre-pandemic lengths, but loss activity is starting to increase. The hidden underlying financial issues of contractors who took PPP loans are now exposing themselves. Projects are continually being delayed coupled with cost escalations and supply chain issues are leading to profit fade. We are expecting the surety market to tighten with underwriting attention focused on profitability, cash flow and debt service.

Original article can be accessed here: https://www.usi.com/market-outlook-2023–pc/2023-commercial-pc-market-outlook/

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