Understanding Rate Increases in the Insurance Market

Understanding Rate Increases in the Insurance Market

August 11, 2020

An excerpt from “State of the Property Market: 2nd Quarter Update 2020” published by John Rizzo, CPCU, ASLI Area Executive President RPS San Francisco

This is easily the most challenging market environment we have experienced since post-9/11 and post-2006 in the aftermath of Katrina, Rita, and Wilma. Most industry veterans will tell you that this firm market cycle is worse than any other we have seen in recent memory.

It is different than other firm market cycles because capacity constraints are still relatively non-existent and pricing pressures and rate adequacy continue to play a significant role in all client and carrier discussions. This market also feels different because it took two years to build up to where we are today and continues to accelerate with very little signs of easing.

It also has culminated at the worst possible time given that it coincides with the most significant pandemic the world has seen in recent memory. The COVID-19 virus has crippled various industries—travel and leisure, restaurants, and hospitality to name a few—and continues to plague the fabric of the global economy.

The culmination of market conditions across the property and liability arenas as well as the impact the pandemic is having on the economy has created the perfect storm and is leaving many insureds with difficult decisions to make regarding limits and retention levels. The increased costs the insureds are seeing is needed for the fiscal health and stability for the insurance industry, but is putting some clients’ financial stability in jeopardy because these costs are playing a more prominent role in their respective P&L statements.

Through the first two quarters of the year, carriers have enjoyed average rate increases of 15% to 25% depending on loss experience and asset class, and in speaking with some of the larger insurance providers in the P&C space, renewal retentions have been well over 90%. This trend is expected to continue, but carriers should proceed with some caution because July 1st did show in many cases that rate levels have now exceeded healthy margins on various accounts and there was a dip in renewal retention due to some incumbent markets being replaced across a wide array of accounts with more competitive capacity.

As the next half of the year unfolds, all eyes will be on COVID-19 claims and their likelihood of being paid, as well as the Atlantic hurricane season. If hurricane activity is relatively benign, I would expect rate increases to stabilize and also carrier retentions to continue to drop to more traditional levels, which may slowly curtail the challenging market environment we have traded in for close to 30 months. If the impact of the Atlantic hurricane season is severe, it will be an interesting road ahead and it is quite likely that the availability of capacity will become more constrained which will further fuel the market conditions we find ourselves presently in.

“State of the Property Market: 2nd Quarter Update 2020” Published on 07/14/2020 by James Rozzi, CPCU, ASLI Area Executive Vice President RPS San Francisco  https://www.rpsins.com/knowledge-center/items/state-of-the-property-market-2nd-quarter-update-2020

Disclaimer:  Any information and recommendations contained in this communication have been obtained from sources believed to be reliable. However,Underwood Anderson Insurance accepts no legal responsibility for the accuracy, sufficiency, or completeness of such information. Content in this document is not legal advice, nor does it amend the terms, conditions, or coverage of any insurance policy issued through our agency at Underwood Anderson Insurance.