Gallagher report says US commercial lines reaching price adequacy

Rate increases are moderating for some US commercial lines but others such as cyber are still increasing, according to Gallagher’s Winter Market Report. It notes that competition is growing with new entrants to the market, but social inflation remains a concern in many lines of business.

After three years of substantial rate increases, Gallagher believes the market is approaching a point of rate adequacy in the market, which is leading to more moderate rate increases. It says the market is trending slightly flatter, though not in every coverage line – cyber has kept up sizeable year-over-year rate increases while workers compensation rates were flat.

“With improving rate adequacy comes increased carrier competition. There are a number of new entrants to the market and increasing competition as underwriters look to write new business. We expect this to level off rate increases further into 2022. Exceptions are challenged placements, those with elevated risk profiles and accounts that have experienced losses,” the report states. It adds that social inflation remains a concern, with a particular impact on commercial auto, general liability, D&O and umbrella/excess insurance.

Property
The report notes that there is rising carrier competition in the marketplace, with carriers looking to write new business now that rates have risen for three consecutive years. However, renewals can still be difficult for those with challenging occupancies, a lack of third-party engineering reports, and catastrophe-exposed businesses. There is also still concern over climate-driven claims and the frequency and severity of perils such as tropical storms, wildfires and floods.

Workers compensation
Workers compensation continues to be a profitable line of insurance for most carriers. However, Gallagher says that rate decreases may be moderating after several quarters of rate drops for many companies. It says it has seen signs that the workers compensation market may be firming as employees return to the workplace, and claims frequency will likely rise as less experienced workers enter the workforce. The long-term impact of Covid-19 on workers compensation remains to be seen.

Commercial auto
Commercial auto claims frequency is almost back to pre-pandemic levels. In particular, the broker notes that large jury awards in commercial auto insurance (in excess of $10m) are becoming increasingly prevalent. The report says companies with large fleets or poor loss history may experience more significant rate increases, and carriers insuring large fleets are looking to attach excess layers above $1m.

General liability
Umbrella/excess carriers are asking for higher retentions and limits in general liability, Gallagher says. Instead of the traditional $1m limit that has been the norm for the past 30 years, carriers are now asking for $2m. “Most policyholders will encounter rate increases but because the primary general liability limits have by and large remained stagnant, the rate increases will likely remain in the single digits,” the report states.

Umbrella/excess
“The knee-jerk reaction of rate corrections has ended. Rates will still go up but, for most clients, they won’t be the substantial increases like we saw in the past,” states the report. “We’re seeing new entrants and additional capacity coming into the market. We expect rate increases to continue into 2022, yet with more moderate increases than we saw in 2021.”

D&O
Premium price increases continue to take effect across the board and remain in the low double-digits for most accounts but a few companies will do even better, says the broker, adding that there is new competition in the marketplace. Gallagher expects pricing to decline slightly, moving from 10%-25% a year ago to single-digit rate increases, with fewer increases in retentions in 2022.

“There is still some uncertainty surrounding Covid-19 but carriers are no longer hovering over the panic button like they were a year ago, which is helping to moderate pricing,” it says in the report. “D&O claims related to Covid-19 did not turn out to be particularly significant, and bankruptcies related to Covid-19 leading to D&O claims, likewise, largely did not result in significant claims.”

Cyber
Carriers have imposed significant limitations of capacity, narrowed the scope of coverage terms, heightened underwriting scrutiny and significantly increased rates.

The report notes: “Nearly all carriers now require attestation of at least some preventive controls, which likely include multifactor authentication, remote desktop protocol, data backup practices, segregation of networks, encryption, patch management, privileged account management, employee training and a host of others.”

Companies without best-in-class data security are likely to see rate increases in the 100%-200% range, and in some cases as high as 300%, the broker explains. Even those that comply with all underwriting required security controls are seeing increases in excess of 75%. “Rate hikes show no real signs of levelling off in the near term, and this will likely force insureds to offset these costs by assuming greater self-insured retentions and taking an even greater role in actively managing cyber risk,” states the report.