An overview of The Council of Insurance Agents & Brokers’ Commercial Property/Casualty Market Index Q3/2023
Each quarter, The Council of Insurance Agents & Brokers releases its Commercial Property/Casualty Market Index. Here, we review the Q3 2023 findings, which utilize data from July 1 through September 30, 2023, and provide insights for the current quarter.
PREMIUM PRICE CHANGES
Overall premiums increased by an average of 8.1% in Q3 2023, which marked the 24th consecutive quarter of premium increases. This was attributed in large part to property coverage and to several other factors including selectiveness by the carrier, information requests, and more limited underwriting capacity.
Medium accounts saw the highest impact at 8.9%, with small accounts at 7.9% and large accounts close behind at 7.5%.
A change in appetite and underwriting guidelines meant nonrenewal for small business owners in greater numbers than in the recent past. Carriers pulled back on underwriting small accounts or had left the space altogether, according to respondents.
Rate increases by line of business remained on par with the first half of the year at an average of 7.1%, from 8.3% in both Q1 and Q2. There were two exceptions this quarter– D&O and workers compensation. While workers compensation continued to provide relief for the seventh consecutive quarter at -2.0%, D&O rates were the most welcome change at – 0.3%, marking the first time since Q1 2017 that the line has experienced a decrease.
Cyber continued to trend down at an increase of just 1.6%, which is welcome evidence of moderation and maturation for the line. This despite a 2.3% rise in the average cost of a data breach, according to the IBM Cost of a Data Breach Report 2023.
For the fourth consecutive quarter, commercial property premiums boasted the highest average increase among all lines coming in at 17.1%.
NOTABLE LINES OF BUSINESS
Directors & Officers (D&O)
After hitting a peak rate increase of 16.8% in Q2 2020, directors and officers coverage has been on a consistent trend of moderation. However, the line did not experience the typical signs that accompany softening market conditions as there was static demand and relatively little change in capacity.
As noted in our 2023 D&O Market Outlook, the relative calm could be short-lived, and market softening is not expected to have staying power. The impact of initial public offerings (IPOs) and special purpose acquisition companies’ (SPACs) premiums drying up while new carriers entered the fold led to more markets chasing fewer dollars. This contributed to falling D&O premiums (or less-than-anticipated increases) in the face of many competing market conditions.
“Simply put, there’s just too many headwinds in the D&O market for the soft rates to last,” said Michael McLaughlin, leader of IOA’s Management Liability Practice. This is supported by CRC Group’s Private D&O REDY Index – October 2023, which showed pricing climb from 0.0% in August to 2.6% in September.
Commercial Property
U.S. 2023 billion-dollar natural disasters to-date have reached a total of 25 incidents, with Tropical Storm Hilary data still pending, according to the National Oceanic and Atmospheric Administration (NOAA). Despite a relatively quiet hurricane season, secondary perils in the first half of the year—such as severe convective storms with snow, hail, and flooding—became a dominant driver of above-average insured losses. Market researchers are predicting that final year-to-date insured losses will land in excess of $100 billion. The main drivers of commercial property premium increases are:
- High reinsurance costs
- Lack of reinsurance capacity
- Unrelenting natural catastrophes
- Increased claim frequency
After reductions in capacity and a year of increases over 15% for this line, business owners often found themselves in a position that necessitated the identification of more creative solutions such as higher deductibles and the use of captives and parametric insurance alternatives.
Inflationary impacts also strained commercial property coverage as attempts to recover from a loss were impeded by repair costs, particularly for necessary parts and materials.
After a long spate of rising rates, increased scrutiny, cuts in coverage, tightening capacity, and a departure from traditional risk, fatigue has set in for many business owners. A heavier lift in securing the right insurance coverage doesn’t seem to show any signs of letting up at this point in time.
Indeed, many forecasts predict the hard market to persist through 2024 and begin to soften in 2025. To secure optimal premiums, business owners must engage an expert insurance advisor who understands not only the intricacies of their business but also the risk transfer solutions available amid the challenges of today’s market realities.
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