Continuous wildfires in California and the southwest. Hurricane seasons that seem to get worse every year. Increasing jury verdicts. Stubborn supply chain issues. These are just some of the forces battering the property-casualty insurance industry in 2023. They have taken a toll on insurance carriers’ financial results and produced challenging preferred market conditions for independent insurance agencies.
The P/C industry incurred a $26.5 billion underwriting loss in 2022, more than five times the loss in 2021. Policyholder surplus fell by nearly 7%. Carriers are also paying more for reinsurance. January reinsurance renewals brought with them the largest premium hikes in three decades.
The challenges to the preferred market are further underscored by the premium dollars flowing to the excess and surplus lines market. E&S premiums grew 20% in 2022 and have doubled since 2018.
“Social inflation, meaning more lawsuits and litigation, along with increased labor costs, higher materials costs, lumber, car parts having more chips which are more expensive, higher used car prices, supply chain issues, results in most P and C insurance companies losing money, as was the case in 2022 in a significant way,” says Rex Hickling, CPCU, AIM, president of agency network Premier Group Insurance.
Looking toward the rest of 2023, here is what agents can expect:
Difficult personal and commercial property markets. Commercial property insurance premiums increased an average of 20.4% in the first quarter of 2023. Homeowners insurance premiums on homes insured for less than $1,000,000 are projected to rise 8 to 12% this year, with more expensive homes in the 10 to 14% range. Homes in catastrophe-exposed areas (those susceptible to wildfires or windstorms) may see increases of 20 to 50% if they are offered renewals at all.
Capacity may also be limited. One major carrier recently announced a halt to writing new homeowners business in California due to persistent wildfire problems. Some carriers have halted writing new business in coastal areas. Agents in parts of the country susceptible to hurricanes and tornadoes may have trouble obtaining coverage on buildings with older roofs.
These problems are being driven by:
- Increases in losses are outpacing premium increases, with inflation, supply chain bottlenecks, and labor shortages in the construction industry pushing up loss costs.
- By one estimate, two-thirds of U.S. homes are underinsured. Shortages of basic materials such as lumber have pushed rebuilding costs higher. At the same time, policyholders balk at large increases in limits on top of rate increases.
- Soaring reinsurance costs.
The Florida state government recently enacted a series of measures designed to make coverage more available and affordable. They have been in effect for less than six months so their impact to date is uncertain.
Tight personal and commercial auto markets. Weather catastrophes have also pushed up auto losses. However, state regulators are reluctant to approve higher rates. California has rejected rate increases since the COVID pandemic began in 2020. One carrier in New York has reduced agents’ personal auto commission levels to the low single digits in response to regulators’ refusal to approve rate requests.
This inability to get rate has hurt coverage availability, Hickling says. “Hence, underwriting has tightened and in some cases is very tight. Think California, Florida, the gulf states.” He also notes that it’s impacting every distribution channel – independent, captive, and direct-to-consumer.
Certain commercial classes will remain difficult. Construction contractors saw rate increases up to 38% in the first quarter of 2023. Liability coverage for contractors in New York is automatically eligible for the excess lines market without brokers having to obtain declinations from standard carriers. The trucking industry has seen years of double-digit premium increases, though that may be starting to moderate.
Less volatility in other commercial lines. Commercial general liability premiums are expected to vary from small decreases to small increases. Workers’ Compensation premiums are declining or flat. The pace of cyber insurance premium increases has moderated, dropping from 20% a year ago to 8% now. Employment practices liability, inland marine, directors and officers liability, and surety are all increasing at less than 5%.
“The key for any channel (during times like these,)” Hickling says,” is for the carriers or agencies to communicate with policyholders with education to help them understand. And to present options as solutions.” He mentions telematics in auto insurance, coverage bundling, higher deductibles, and improved insurance to value.
Discussing potential ways to reduce their total costs of risk, not just their insurance premiums, will help your clients and strengthen their relationships with you.