An overview of The Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Index Q3/2024 and marketing conditions beyond.
Each quarter, The Council of Insurance Agents & Brokers releases its Commercial Property/Casualty Market Index. Here, we review the 3Q 2024 findings, which utilize data from July 1 through September 30, 2024. We also consider current conditions to provide context for risk transfer solutions and strategic planning for emerging risks.
PREMIUM PRICE CHANGES
For the third quarter of 2024, commercial lines consumers continued to see rate easing as increases for all account sizes held steady at just over 5%. The lowest increases were felt by small accounts at 4.4%, which was attributed to an uptick in carrier competition for small businesses. This was the 28th consecutive quarter in which rate increases were experienced by businesses of every size.
All lines of coverage recorded lower premium increases in this quarter compared to the previous quarter with the exception of umbrella. As in the previous quarter, three lines saw welcome decreases in premiums—cyber, D&O, and workers compensation.
NOTABLE LINES OF BUSINESS
D&O
Directors and officers (D&O) coverage premiums saw the most significant drop compared to all other lines, coming in at -1.9%. Increased competition among carriers was attributed to “downward pressure” on rates. The line has experienced a considerable declining trend since its peak increase of 16.8% in 2Q 2020 and is now described as “extremely competitive.”
“As we look toward 2025, the market seems to be in another state of transition. Although premium decreases are still prevalent, the pace of the reductions is slowing,” said Woodruff Sawyer in its Looking Ahead to 2025: Navigating a Shifting D&O Insurance Landscape report.
The regulatory environment, legal challenges, and unfavorable case outcomes all play an important role in what lies ahead for businesses facing increased risk and scrutiny. However, there is still some optimism for continued favorable conditions.
“The D&O insurance market remains challenging for carriers, with increased capacity continuing to drive competition and pushing rates lower, even as the macroeconomic environment worsens,” said Michael McLaughlin, management liability practice leader for IOA. “Although rate decreases are beginning to level off, it remains uncertain whether this trend will hold amid potential deregulation under the new administration. While this will take time to reflect in claims experience, it may bolster carrier confidence in the near term, helping to extend the already soft market.”
Umbrella
The line with the largest increase in premiums in the third quarter was umbrella coverage at 8.6%. Respondents attributed this increase to a reduction in capacity along with reduced limits and increased underwriter scrutiny.
When breaking it down by an organization’s size, umbrella for large companies (revenues of $1 billion+) is expected to see increases from 8% to 15%, while small commercial and middle-market firms (revenues <$1 billion) should expect rates to come in at about 6% to 12%, according to Woodruff Sawyer’s Property & Casualty Looking Ahead to 2025 report.
OTHER CONSIDERATIONS
Social Inflation continues to have a severe impact on insurance rates, and respondents noted that it was a key factor for umbrella rate increases. However, it is not the only line experiencing a negative impact.
According to Best’s Special Report: Social Inflation Remains a Thorn in the Side of Casualty Insurers, “the lines of business most affected by social inflation are commercial auto, professional liability, product liability, and directors and officers liability insurance. Loss severity for these lines has exceeded the rate of economic inflation, in most cases by double or more, with social inflation likely being a key factor.”
Commercial auto premiums rose by 8.5%, driven by increased claim severity and frequency, along with social inflation. Increased attorney advertising and third-party litigation financing are both seen as accelerators in not only claims but also the high cost of insurance premiums for the line.
Claims & Demand
Unsurprisingly, respondents reported a spike in claims for commercial property as well as for flood. This was attributed to natural catastrophes occurring in the quarter, including Hurricane Helene in September 2024, which left a path of devastation across several southern U.S. states.
Federal Emergency Management Agency (FEMA) has estimated that flood insurance losses from Helene could range from $3.5 billion to $7 billion, and Moody’s RMS Event Response estimates that total U.S. insured private losses from the event could come in between $8 billion and $14 billion.
One thing is for sure, we won’t know the full financial impact for quite some time as businesses and residents continue to struggle with recovery well into 2025.
The commercial insurance market remains difficult to navigate, with rising premiums in high-risk lines like umbrella and commercial auto, while certain lines like D&O and cyber are experiencing declines due to competition and market adjustments. Knowing how to optimize coverage, improve risk transfer, lessen claims, and manage costs effectively will be key to responding well to market fluctuations, no matter the industry.
To secure the best premium rates and coverages, business owners should engage an expert insurance advisor who understands the intricacies of their business and has the carrier relationships necessary for the best risk transfer solutions available amid the challenges of today’s complex market realities.
For a copy of the full report, contact your IOA broker.
