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Survey Report

Insurance Marketplace Realities 2022 – Property

Property
N/A

November 15, 2021

Rate deceleration continues, but an overall market shift is unlikely in the near term.

Rate predictions

Rate predictions: Property
  Trend Range
Non-challenged occupancies +2% to +10%
Challenged occupancies Increase (Purple triangle pointing up) +15% or more

Key takeaway

Rate deceleration continues, but an overall market shift is unlikely in the near term.

The two-tiered market continues. Non-challenged occupancies are seeing a tapering of overall rate increases, while challenged occupancies and loss-affected clients continue to experience a hard market, albeit at a decelerated level, compared to 2020 and early 2021.

  • Average rate increases have dipped into single digits for the first time since Q1 2019, and we expect them to stay there into 2022. Increases for challenged occupancies (forest products, metals, waste management, food and beverage, among others) and loss/risk protection-challenged accounts, remain in double-digit territory.
  • Profitability and underwriting disciplines remain a key focus for insurers. However, there is increasing pressure for carriers to maintain market share and retain renewal business. Client retention is a top priority for senior leadership.
  • We are seeing new business budgets for the first time in 18+ months, which is leading to additional capacity and appetite in the market — for the right risks.
  • Focus on risk management, loss control and mitigation efforts are fundamental during the underwriting review process for new business opportunities.

Non-modeled cat losses are contributing to the sustained, if moderating, upward rate environment.

  • Profitability in the property sector continues to underperform due to loss frequency uptick over the past six years.
  • Rate and premium increases are likely not keeping pace with increases in property losses. This cycle of unprofitability continues to put pressure on insurers to maintain rate adequacy.
  • Increased scrutiny of tornado/hail, winter storms and wildfire exposures will continue, with insurers starting to implement models for these perils and charging premiums to cover expected losses.

Focus on profitability continues to restrict terms and conditions offered.

  • Due to large claims, COVID-engendered supply chain disruption/constraints and an inability to properly underwrite the exposure, there is an increased scrutiny on contingent time element sub-limits. We are seeing insurers reduce these sub-limits, look to schedule customers and/or suppliers and reduce or eliminate coverage for all but the top-tier buyers.
  • We see a continued push for company policy forms, but cracks in the armor are appearing.
    • Communicable disease and cyber exclusions are standard.
    • Tornado and hail percentage deductibles, as well as wildfire percentage deductibles, are being socialized but not yet mandated across the board.

Uncertainty from Hurricane Ida, COVID-19 and loss creep are being monitored.

  • While it’s still too early to tell what the long-term effects of Hurricane Ida will be in the overall market, current insured loss estimates are between $20 billion and $30 billion (though recent estimates from RMS are as high as $40 billion). So far, there has been no discernible rate impact from Ida, but loss creep is beginning to manifest itself for Ida claims and many of the major property carriers are forecasting another year of sub-par profitability.
  • Other major cat events, e.g., winter storm Uri in the U.S. and European flood Bernd, have contributed to another likely $100 billion catastrophe year for insurers/reinsurers. This will likely lead to elevated cat reinsurance pricing in 2021 which will percolate through to direct insureds at some point in 2022.
  • The impact of paid and expected COVID (property-related) losses has already been baked into rates and, even if insurers suffer courtroom setbacks, the financial impact will not be felt for many years as suits wend their way through appellate courts and perhaps even the Supreme Court.

Buyers need to take control of their insurance renewal with a commitment to broad data collection and data quality.

  • Increased information will help buyers more accurately model any changes (e.g., reduction in limit or increased retention) and help assure that risk management strategies reflect organizational risk appetite or corporate philosophy.
  • Analytics provide important guidance as buyers align offerings in the marketplace to their rapidly shifting risk transfer needs.
  • Buyers need to distinguish themselves from their peers, especially in challenged occupancies. Risk managers must help tell this story and provide the necessary data to satisfy underwriters’ insistence on robust underwriting information.
  • Underwriter meetings are encouraged; telling a story of mitigation efforts, improved loss control measures and disaster recovery/business interruption plans remain critical in differentiating a buyer’s risk.

Risk managers need to manage stakeholder expectations as rate increases continue; they should consider creative solutions and alternative structures to mitigate the total cost of risk.

  • Property is a not one-size-fits-all market; carriers are scrutinizing submissions.
  • Accessing the global marketplace (London, Bermuda and Asia) may be crucial, especially for shared and layered deals.
  • The need to differentiate risk has never been greater.
  • Consider alternative structures such as parametric programs to complement a traditional insurance plan. A parametric contract could provide immediate liquidity in the event of a covered loss while the loss adjustment process for the traditional program is worked through.

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.

Contact

Gary Marchitello
Chairperson of North American Property Practice

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