Insurance market hardening to moderate further at year-end

Some risks will face flat or soft renewals

European risk managers will continue to face a hardening commercial insurance market at year-end renewals but price rises look set to continue moderating and capacity will be more keenly deployed, with some risks enjoying flat or even softening conditions, according to experts from across the risk transfer industry. 

After several years of extremely tough or hash market conditions, things have slowly began to look a bit better for risk managers. While prices rises have continued for most risks and territories during the last 12 months and capacity remains tight, broker indices have confirmed that the market has been moderating. Rate increases have fallen and capacity freed up a touch as insurers begin to get more comfortable with the price of cover.

But risk managers we have spoken to for this issue of Commercial Risk Europe – including Amrae’s president Oliver Wild, Ferma vice-president Charlotte Hedemark Hancke and former Swerma president Athina Pehrman – have all complained that things remain difficult for insurance buyers.

As we head into 1 January renewals, many risk managers hoped that we might finally start to see the market turn and they would be able to enjoy soft conditions. But just as this may have been on the cards, inflation has hit, there is a war in Europe and cat losses continue to stack up. 

Europe has suffered a whole range of extreme weather this year and hurricane Ian has now wreaked havoc in the US, with insured loss estimates above $60bn. On top of this, the reinsurance markets are hardening, with nat cat risks in particular set to attract higher rates that experts predict will ultimately be passed on to primary insurance buyers. 


So, as we go into the renewals, what can risk managers expect? In short, it seems the market will harden further but things will be easier than the last couple of years as the moderation trend continues. 

Ferma president Dirk Wegener told Commercial Risk Europe that European risk managers continue to face hard market conditions, which, in his opinion, are “far from over”. 

“Shortage of insurance capacity, more exclusions and higher premiums are still the norm, which significantly reduce the options available to companies and potentially increase the protection gap,” he said. 

Wegener added that Ferma is keen to foster “constructive dialogue” with the insurance industry about current market conditions and innovative risk transfer solutions during the Ferma Forum in Copenhagen this week.

Hugo Wegbrans, global head of broking and broking strategy at WTW, said it depends on the risk, but in general the market is now “stabilising”, with price rises continuing to come down. 

He said the focus among insurers has gone from remediating books of business, which is now mostly complete, to growth mode as they make underwriting profits once again. “That reduces pressure from a pricing point of view,” said the broker.

Wegbrans said some areas remain difficult for buyers, with pressure on catastrophe cover, not least from the reinsurance market. Cyber is still very difficult, as are other risks such as supply chain and contingent business interruption, he added. 

But moving in the other direction, the global D&O maket, which has been hit hardest over the last few years, is now probably the softest, with rates coming down considerably, continued Wegbrans. 

“The rest have pretty much stabilised,” he added.

Wegbrans said the million-dollar question now is whether prices start to soften or the higher rates are here to stay.  

“Carriers think that the new pricing level is the new normal, whereas clients still feel bruised by the last couple of years and want to see pricing down to a lower level. I think that is the big question that is coming,” he said. 

His theory is that going forward there will be swings in pricing but not as big as in previous soft or hard markets. 

“In the long run, my guess on pricing is it won’t go back to big 50% reductions, although we do see that in D&O now where pricing is coming down after an overreaction. I think in general it will be a bit more stable. So you will see swings of 20% up and down rather than getting back to big reductions and loss-making business,” he said.

Good news

The good news for buyers as they head into 1 January renewals is that there will be more individual underwriting based on risk profile, and alternative markets available to shop around, Wegbrans continued. 

“Clients should go out and have a discussion about where to place their business because there is simply more supply and more opportunities to have these individual discussions again,” he said.

Adding: “We have come from a position where insurers made central decisions whether to cover a risk, line of business or geography or not. There were very general rules. What you see now is decisions being given back to underwriters on the ground. If the risk is right and the pricing is right, they will do individual underwriting rather than looking at whole books of business. So, risk managers have gone from a position where they couldn’t discuss anything with their underwriters, to now where it is much more about individual underwriting again.” 

And Wegbrans thinks capacity will be available for most risks now insurers have cleaned up their books and are happier with pricing. 

“The hard market over the last 12 to 18 months has not been because of a lack of capacity. The issue was carriers just didn’t want to deploy it. I think overall, insurers have the same capacity to work with but they are looking to deploy it in a better way and if they feel it is the right price tag, they will come up with the right amount of capacity,” he said.

Nick Holmes, head of global placement for continental Europe, Middle East & Africa at Marsh, agreed that insurers are beginning to demonstrate greater ambition to grow their books and take advantage of the better ratings environment. This is putting downward pressure on pricing for new business and creating competition for quality risks without a loss or catastrophe element. 

But other areas will continue to be difficult for insurance buyers at year-end, he added.  

“It is likely that difficult occupancies, loss-impacted and catastrophe-exposed programmes, will continue to be challenging, as insurers may reduce the capacity and limits,” he said. 

“Catastrophe risks are expected to continue being challenging following another difficult hurricane season. On the casualty side, US exposures are causing ongoing concern, due to a continued trend of severity, losses and jury awards,” said Holmes.

“Frustratingly, insurers are also likely to adopt stricter exclusionary wordings around cyber, communicable disease and ESG, which, in most cases, do not serve the interest of the client or provide clarity,” he continued.

But again, he said the D&O market is now softening and experiencing a “more positive trend, especially when compared to prior years marked by tremendous price increases”.

Eelco Ouwerkerk, managing director of Aon’s Global Client Network in the Netherlands, said the insurance market is not as hard as it was this time last year but expects premiums to still rise at 1 January driven by inflation. However, he said some risks will enjoy flat renewals this time around.

“In a number of lines of business, the technical underwriting price is rising less rapidly than in 2021, but often there are still premium increases,” he said. 

But Ouwerkerk said there is “slightly’ more room for buyers and their brokers to push for what they want in coming renewals. For example, longer-term insurance solutions are back on the table, he noted.

New standard

Despite the moderating market, Ouwerkerk stressed that the “new underwriting standard” developed by insurers during the last few years remains in place.

This means buyers will face less flexibility than a few years ago as insurers remain focused on technical underwriting. More risk information is still required and risk management will be key.  “Concrete plans and demonstrable progress are important for a good quotation,” said Ouwerkerk.

And he still feels decision-making remains more central, with less autonomy given to local underwriters. “There remain more referrals because decision-making power of insurers is organised at a central level… so local relationships are therefore more limited,” he said. 

Etienne Champion, chief underwriting officer for APAC and Europe at AXA XL, believes the moderating trend in commercial insurance will likely continue at year-end for many risks. 

But he said any predictions of market softening have been curtailed by nat cat losses in Europe and elsewhere this year, which have put a brake on any potential price decreases.

Champion added that certain lines will see further rate increases to deal with inflation. 

“That is a generalisation because inflation affects each line differently. But for those that don’t have regular updates to sum insured such as property or marine values in cargo, insurers have no choice other than to keep the rates slightly up to make up for inflation. 

But I think in other lines of business the moderation in price rises will prevail,” said the insurer. 

He also thinks capacity will remain stable for coming renewals. “I think capacity will remain as it is, which is pretty constrained. We are coming from three years when the capacity has been scarcer and scarcer. So, capacity not increasing but not decreasing either, that is the good news. We have reached a point where I think people have reached stability. The price that we pay to access the capacity on the reinsurance market will be higher but capacity is stable,” he said. 

Buyers will be pleased to hear that AXA XL plans to give more control to local underwriters. 

“If a market hardens, it is because it faces some challenges. The moment you face those challenges, you normally create more referrals to central control. But when you are out of those challenges and you think you have dealt with them, which we do in the main, you should give back to your teams that empowerment. This is one of my priorities at the moment over the next few weeks to walk the walk on this. We are working currently on a series of modifications to our governance to reflect this within our underwriting guidelines and to help our clients,” Champion told Commercial Risk Europe. 


Jeremy Sharpe, global head of distribution at Allianz Global Corporate and Specialty, believes the corporate insurance market has remined “relatively stable” against an “alarming” backdrop of the war in Ukraine, pandemic, looming energy crisis and rampant inflation. 

He said ratings have remained “strong” during the past few months but capacity is available for most risks, excluding cyber. Going forward, insurers will have to factor in inflation during the underwriting process, he said. 

“Clearly, we need to manage our own inflation exposures in underwriting. Essentially, this means factoring in rising claims costs in our underwriting practice. For most segments, sufficient capacity is available – the only exception being cyber insurance as an outlier. We continue to see a strong interest for captive fronting and reinsurance or alternative risk transfer solutions as companies are looking to self-retain more risks,” said Sharpe.

Back to top button