Forecasting the Future: Pricing Stability or Stormy Skies?

The past six months have witnessed a barrage of headlines that nearly contradict one another daily. Those that are predicting a soft landing in rates and those that think it's just the beginning. Well - which is it?

1. Stabilization in the Commercial Property Insurance Market

The commercial property insurance market has shown signs of stabilization and improved capitalization in 2024. This positive trend follows a challenging period marked by substantial rate increases and reduced capacity. According to a report from USI, recent updates from Moody’s RMS and Verisk on hurricane models are expected to significantly impact pricing and capacity, particularly in the Gulf Coast and Southeast regions. These updates are likely to result in average modeled losses increasing by 5% to 10%, with some portfolios experiencing increases as high as 20% to 30%.

On the other hand.... the 2024 storm season has everyone in a tizzy and many in the weather biz are predicting a lot of West Coast action! Now this could save some in the Gulf where elevation challenges are much more prolific. But how does this impact an already destabilized California climate? It remains to be seen.

2. Commercial Insurance Rates Maintain Predictable Trend

According to the Commercial Lines Insurance Pricing Survey (CLIPS), U.S. commercial insurance rates have maintained a steady trend with a consistent 6.3% increase in Q1 2024. This reflects a continuation of the pricing trends seen since the global pandemic. The survey compares insurance prices on policies underwritten during the first quarter of 2024 to those for the same coverage in Q1 2023, providing a year-over-year perspective.

Excess Umbrella Liability coverage has shown significant price increases over the past few years, with recent quarters indicating double-digit increases. Similarly, Commercial Property rates, which had slowed to single-digit increases from Q1 2021 through Q4 2022, have returned to double-digit increases for the last five quarters. These trends underscore the ongoing adjustments in the market as insurers respond to evolving risks and economic conditions.

3. Challenges in the General Liability and Products Market

The general liability (GL) and products market remains particularly challenging.. Insurers are increasing rates from high single digits to low double digits in these segments. One report highlights that litigation surrounding per- and polyfluoroalkyl substances (PFAS) is prompting insurers to mandate exclusions on renewal accounts. This trend is particularly prevalent in industries such as manufacturing, hospitality, retail, and real estate.

There is also a particular focus on jury's at the moment. With an increasingly polarized populis - we're seeing results that are big head scratchers. Bigger verdicts, more corporate distain and angrier jury pools are making predictions for this space really difficult.

4. Focus on Technological Integration

A recent survey highlighted that nearly half of property/casualty insurers plan to incorporate artificial intelligence (AI) into their analytics. However, many insurers are still struggling to fully integrate traditional analytics, indicating a gap between technological ambitions and current capabilities. This finding underscores the importance of continued investment in technology and analytics to enhance underwriting and claims management processes.

We've witnessed this firsthand at CG with our markets. There maintains struggles with integration. Even with the technology that's present on the insureds or with InsurTechs, the carriers have a lot of catching up to do. But this survey presents some good news and hopefully data will continue to be more easily discernable by all involved which will - hopefully - produce better loss ratios.

5. Impact of Inflation on Commercial Insurance Rates

While economic inflation is beginning to slow down, its impact on commercial insurance rates remains significant. According to the CLIPS survey,, rate increases have been particularly noticeable in excess/umbrella liability and commercial property lines.

This is a systemic impact - especially while examining loss runs and the experience of insureds. This is an issue that is impacting everyone and especially impacting the benchmarking capabilities that are there to advise clients on how much limit to buy. It's a problem.

Conclusion

The commercial property and casualty insurance market is undergoing significant changes, driven by evolving risks, economic conditions, and technological advancements. Proactivity is a must as we navigate this challenging time. Keep a good line of communication open with your partners and make sure all parties know what the other is thinking. Eliminating surprises on renewals can help to maintain those partnerships.

Cheers!

Brandon Schuh