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Survey Report

Insurance Marketplace Realities 2021 Spring Update

A two-tiered market, one changing world

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April 21, 2021

Introduction / Executive Summary

A two-tiered market, one changing world

In the not-too-distant past, we were in a sustained soft market that seemed impervious to historic property and casualty losses, making many of us question whether the hard/soft market cycle might be a thing of the past. Then eye-popping rate increases and the disappearance of capacity struck like some weather-borne natural catastrophe on steroids. The market had indeed turned. Now, with higher rates attracting new entrants and coaxing some capacity to come off the sidelines, increases are beginning to decelerate, or at least stop climbing. It’s still a hard market, but to a large degree, the cycle is — or will soon be — proven again. 

Learn more

Commercial lines insurance pricing survey (CLIPS)

Our rate predictions in the following pages of Insurance Marketplace Realities are relevant to the commercial insurance marketplace in which we trade (i.e., the mid-market, national and global segments). When we assemble our forecasts for the coming year, we’re also looking back at recent price movement reported by insurers, grounding us in firm data. CLIPS, Willis Towers Watson’s retrospective look at commercial P&C prices, is based on both new and renewal business figures, across all segments (including small commercial and so-called “main street” business), obtained directly from carriers underwriting P&C business. (It is our experience that insurance rate fluctuations are considerably more pronounced for larger buyers than smaller buyers.) CLIPS participants represent a cross section of U.S. P&C insurers that includes many of the top 10 commercial lines companies and the top 25 insurance groups in the U.S.

The most recent CLIPS survey showed that 24 2020 aggregate U.S. commercial insurance prices increased almost 10%, the highest Q2 increase reported since 2003. For more, review the recent CLIPS report.

With one important caveat — we are seeing the emergence of not one marketplace, but two: one for “good” risks, another for, well, not so good risks. While there are wide variations product line by product line, good risks are finding some easing of conditions, including more modest rate increases. The others, not so much. Strict underwriting and the cautious deployment of capacity on certain risks seem to persist as the underwriting community grapples with systemic changes in the risk landscape. 

Systemic rise in risk

There are several underlying causes of the current hard market: Years of soft pricing and low interest rates for sure, but a major driver is an increase in the severity of losses. Social inflation continues to drive up jury verdicts and casualty losses. A rising number of shareholder class actions has had a similar effect on D&O. Ransomware losses are increasingly difficult for the cyber market to handle and property losses continue to climb with the steadily rising accumulation of insured property in catastrophe-prone areas. Many also believe that climate change will yield a rise in the frequency of catastrophic events, including those we can anticipate and model (e.g., hurricanes) and those we can’t (e.g., tornados and wildfires).  

Given these changes, why would any insurance buyers expect anything positive in the marketplace? We come back to the insurance cycle. After a few year-on-year increases, rates are approaching technical adequacy in some lines for some sectors. This has attracted new capital to enter the marketplace — $23 billion of new capital in the last six months. Start-ups are sprouting in Bermuda and London. Established carriers are expanding their available capacity and starting to deploy it a bit more for some risks. While broadly speaking the market remains hard, it is certainly more orderly and predictable. 

The role of analytics

In the past, when the industry cycle reached a plateau, a rapid decline in rates and carrier pursuit of market share often followed. The late 1980s and early 1990s come to mind. While we are not taking the bait and saying that the market cycle is dead, we do note that this hard market has been characterized by uncanny underwriting discipline. We attribute this to the growing sophistication of analytics. Insurers rely on portfolio analytics to guide financial decisions, which has a direct effect on underwriting decisions. We said in a previous edition of Insurance Marketplace Realities that the fight between analytics and underwriting judgement was over and both had won. The result may be a future market cycle with lower peaks and shallower troughs in the aggregate and more differentiated underwriting of risk classes. This latter characteristic is being manifested in the current two-tiered marketplace. The upshot: buyers need to do everything they can to differentiate themselves into that good tier.

Competing in the two-tiered marketplace

Risk differentiation begins, as always, with a strong commitment to risk management. Providing exposure data that is both current and developed with rigor will help pave the way for better renewal outcomes. High quality data is also a necessary input for updated analytics and modeling. Remember that underwriters have their portfolio analytics; buyers and brokers need to fight analytics with analytics to differentiate good risks from others in the portfolio. Finally, take full advantage of our virtual business world to hold world-class renewal meetings with many underwriters. While face-to-face meetings will always have an important place in our business of trust, videoconferencing enables risk managers to bring multiple internal resources (e.g., CFOs, safety managers, etc.) to the virtual table. This enables underwriters to dive deeper, and it underscores the teamwork necessary to realize a company’s commitment to risk management. In addition, videoconferencing with underwriters around the world has made our global business even more connected.  

Insurance in the post-pandemic world: Words matter

One more note about what we’ve learned during the pandemic — or perhaps something we’ve been reminded of in dramatic fashion. Words matter. In the ongoing stream of court battles over what insurance might or might not apply to pandemic-related losses, we’re seeing cases hinge on the exact wording pertaining to property loss, diseases, contamination, etc. As risk advisers, we try never to lose sight of such details. Understanding the big picture is important, but so are the details.

Back in October of 2017 when the triple whammy of Harvey, Irma and Maria loomed large, we described our worry in this publication that many in our industry had not gone through a market correction. Three and a half years later we have no such worries! We now have a large class of brokers, underwriters and risk managers who have graduated from the most challenging market in decades.  

As a final note, while we see a somewhat brighter horizon in the marketplace for insureds, we certainly see a brighter world for all of us as the end of the pandemic draws nearer. Let us not lose perspective. These times have tested us all, but none more so than those who have lost family or friends.    


Commercial lines insurance pricing survey (CLIPS)

Our rate predictions in the following pages of Insurance Marketplace Realities are relevant to the commercial insurance marketplace in which we trade (i.e., the mid-market, national and global segments). When we assemble our forecasts for the coming year, we also look back at recent price movements reported by insurers, grounding us in firm data. CLIPS, Willis Towers Watson’s retrospective look at commercial P&C prices, is based on both new and renewal business figures, across all segments (including small commercial and so-called “main street” business), obtained directly from carriers underwriting P&C business. (It is our experience that insurance rate fluctuations are considerably more pronounced for larger buyers than smaller buyers.) CLIPS participants represent a cross section of U.S. P&C insurers that includes many of the top 10 commercial lines companies and the top 25 insurance groups in the U.S.

In the most recent CLIPS survey, the aggregate commercial price change reported by carriers grew by almost 5% in the third quarter of 2019, over 6% for the fourth quarter of 2019 and first quarter of 2020, and then spiked upward to nearly 10% in the second and third quarters and now above 10% in the fourth quarter. U.S. commercial insurance prices saw the highest increase since 2003. For more, review the recent CLIPS report.

Looking forward, looking back

With the number of lines predicting rate decreases remaining at zero for the third straight issue, and the number of lines predicting flat or mixed results holding at one for the second straight issue, we are forced to look hard at our rate forecasts in search of good news for buyers of commercial insurance. There is some. For one, property increases are not as steep as predicted in the fall. In 10 lines, we expect increases to be lower, and in almost half the lines, the same — not great, but not worse. Only a handful of lines are expected to see higher increases, and some of those just slightly higher. And there’s the one holdout in the mixed/flat column: kidnap and ransom insurance — perhaps helped by the fact that in the pandemic, many potential kidnap and ransom targets were, like everybody else, stuck at home.

On the other hand, there is some specific bad news on top of the overall bad news: anticipated cyber rate increases jumped from +10% to +30% in the fall to +25% to +50% in this issue.

But beyond the numbers, many of our line-by-line experts do see this ever-so-slight turn for the better continuing and the marketplace becoming less difficult for buyers in the months ahead. Further, as we said in the executive summary, to properly understand the market, readers should look at the range of possible increase and consider how they can get on the better side of that range. A two-tiered market has emerged, one for better risks, one for poorer. Each tier can expect to pay more for insurance in 2021, but those in the better tier will suffer considerably less.

Here are highlights from our 2021 predictions:

  • Property rate increases, while still high, offer what passes for a bright spot in the current marketplace: for challenged occupancies, predicted increases fell from +15% to +20% in the fall to +5% to +15% now; for challenged occupancies the range improved from +30% or more to +20% or more.
  • General liability predictions remain at +7.5% to +15%.
  • Casualty excess predictions are slightly less eye-popping than in spring: from +150% or more for high-hazard buyers and +75% or more for low/moderate hazard buyers, to +100% or more for high-hazard and +50% or more for low/moderate.
  • Workers compensation continues to offer a respite from big increases, with some buyers even coming away with flat renewals.
  • Auto rate increases remain plateaued at +8% to +15%.
  • D&O increases are decelerating, from +20% to +50% for public companies and +10% to +50% for private/non-profit organizations in the fall to +10% to +40% for public and +5% to +45% for private/non-profit now.

The market remains hard, but better times for buyers, at least somewhat better times, should be ahead in the not-too-distant future, despite the extreme numbers in the chart below.

Market trends: lines facing increases, decreases or a mix*
IMR issue Decreases Increases Mix/flat
2021 spring update 0 30 1
2021 0 29 1
2020 spring update 0 23 5
2020 2 20 5
2019 spring update 2 14 9
2019 2 14 9
2018 spring update 2 10 10
2018 7 7 9
2017 spring update 10 6 7
2017 10 6 7
2016 spring update 9 8 5

* The 2021 spring update figures include marine hull/liability and marine cargo as separate lines. The 2021 figures include life sciences and alternative risk transfer predictions for the first time. The 2020 spring update figures reflect the addition of managed care errors & omissions as a separate line of business. The 2020 figures reflect the addition of personal lines and financial institutions as separate entries. The 2019 figures reflect the addition of marine, cargo and senior living/long-term care as separate lines of business. The 2018 spring update figures reflect the absence of marine in that issue; the 2017 figures reflect the addition of international coverage as a separate line, and the 2018 figures reflect the addition of product recall and the subtraction of employee benefits, which are no longer covered in this report. Casualty lines are discussed in one combined report but are included in this table as separate items (GL, umbrella/excess, auto and workers compensation).

For more insight on how you can prepare for a challenging marketplace, contact your local Willis Towers Watson representative.


Table of Contents


  1. Alternative risk transfer (ART)

    ART deals, whether simple, novel or innovative, supported by robust analytics and negotiated over realistic timeframes, fare better.


  2. Captive insurance

    As the hard market continues, we continue to see an increased deployment of captives.


Major product lines


  1. Casualty

    Commercial liability marketplace has remained challenged. However there has been less volatility in recent umbrella and excess liability renewals.


  2. International casualty

    The market for international casualty has continues to see significant impact from recent social and economic trends.


  3. Product recall

    A delay in increased regulation in Washington, to later in 2021, has resulted in a fairly stable product recall landscape.


  4. Property

    A two-tiered market has resulted from the recent rise in availability of capacity.


Professional liability lines


  1. Cyber risk

    Given the dramatic increase in ransomware incidents, organizations should be proactive in assessing their cyber resilience.


  2. Directors and officers liability

    Underwriters are laser-focused on liquidity, industry and disclosures specific to COVID-19.


  3. Employment practices liability

    The EPL market has remained hard, rates, retentions, and COVID-19 claims continue to trend upward.


  4. Errors and omissions

    Adverse loss trends are pushing underwriters to continue to adjust their pricing and capacity.


  5. Fidelity/crime

    Crime is often part of the greater financial and executive lines portfolio; rate hikes continue to be sought more broadly. Though we still expect rate pressure on crime renewals we do not expect to see carriers push rates to the extent they did in 2020.


  6. Fiduciary

    Regulatory uncertainty will continue as our hard market has caught up with fiduciary liability.


  7. Financial Institutions — FINEX

    The financial lines market for financial institutions (FIs) has hardened and we expect to continue to see upward pressure.


Specialty lines


  1. Aerospace

    As the pandemic wanes the air travel industry aims for a revival.


  2. Construction

    Rates continue to rise actoss all lines of business and geographies.


  3. Energy

    Expect hardening to continue for downstream energy. Positive factors are limiting continued market hardening in upstream energy.


  4. Environmental

    Breakthrough innovations in environmental analytics are creating opportunities for buyers.


  5. Healthcare professional liability

    2021 premium growth goals by carriers are typically a precursor to an increase in competition.


  6. Kidnap and ransom (Special contingency risks: SCR)

    The special risks insurance markets continue to reduce their exposure to cyber extortion events.


  7. Life sciences product & professional liability

    As the market stabilizes, COVID-19 exposures continue to lead the conversation.


  8. Managed care E&O and D&O

    The market is hard: Significant rate increases, insistence on increased retentions, capacity problems and coverage restrictions.


  9. Marine cargo

    Market fluctuation around pricing is starting to subside and become more predictable.


  10. Marine hull and liability

    Conditions remain hard for cargo. For hull, 2020 was one of the hardest marine markets in more than 20 years.


  11. Personal lines

    Insurance carriers are taking aggressive actions in a drive toward profitability. Buyers need to be creative in finding solutions.


  12. Political risk

    Traditional political flashpoints compounded by COVID-19 have led to unprecedented challenges.


  13. Senior living and long-term care

    Premium rates, program structures and terms and conditions continue to be impacted despite the reduction in senior care liability capacity subsiding.


  14. Surety

    The surety market retains stability as economies emerge from the COVID-19 pandemic.


  15. Terrorism and political violence

    Broad civil unrest and political violence has raised concerns about coverage applicability and availability.


  16. Trade credit

    With the current two-tired market, insurers have capacity for better risks.


Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third-party sources we consider reliable; however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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