Strong competition sees improving market conditions, says Lockton

New entrants, often with a broader risk appetite, are driving strong competition for business and forcing existing insurers to limit their desired increases, according to Lockton. In its H2 2023 Insurance Market Update, Lockton says this means businesses across most sectors are finding sufficient capacity and a favourable environment at renewal, and flat rates or rate reductions are now common for well-managed risks. Improving conditions define much of the current market, and since insurers benefited from healthy profits in 2022, they are now displaying a healthy risk appetite, says Lockton, and new capacity is entering many markets, driving competition for premium and market share. Rate reductions are therefore becoming more regular, with some negotiation available for existing placements. But at the same time, a hard market persists for sectors with greater exposure, such as property. “An increase in claims costs from natural catastrophes is adding to the pressure that insurers are exerting on pricing for property risks. While this is mostly affecting the US market, predicated on a record year for catastrophic events with the number of billion-dollar events increasing to an average of over eight per annum, the effects are spilling over to other jurisdictions via reinsurance agreements,” says the broker. The UK property market has performed better for buyers in 2023 than originally predicted, due to insurers’ healthy risk appetite, says Lockton, with a further reduction in the average rate increases from 6% in Q1 2023 to 4% in Q2. In contrast, in the US, rate increases averaged 19% in Q2 2023. Much of this is being driven by the reinsurance market. Lockton says in the update that reinsurance rates are trending high, due partly to reinsurers’ high exposure to natural catastrophe losses, with the first half of 2023 seeing a high frequency of extreme weather events across the globe, including heatwaves, droughts, severe wildfires, floods, and extreme precipitation. “With these trends anticipated to continue, and the need to compensate for previous losses, reinsurers are reluctant to reduce rates. At the insurer level, this in turn is fuelling hesitancy with regards to longer-term risks,” says Lockton. Casualty insurers and reinsurers continue to raise concerns over the impact of inflation, the rate of adverse loss development and the continued challenges of litigation funding, the update notes. “Once seen as a phenomenon for US domestic risks, the increase in lawyers being remunerated by financial outcomes is showing signs of impacting insurers with large international books that have significant US exposures,” it states. Lockton says it has seen an upward trend in pricing for US casualty for the first part of 2023, but this is stabilising from the height of the hard market in 2019. “However, pricing is not indicative of rate trends across the board. The current state of market is complex, and there is significant difference depending on industry sectors,” it adds. It goes on: “Carriers continue to analyse and re-evaluate their books in challenging classes and venues, and they are altering terms, adjusting rate, or exiting classes entirely. New carriers are not eager to move into these spaces, which results in less capacity at higher rates. Conversely, in less challenged classes and locations, more capacity has entered the market, resulting in a more competitive rate environment.” For UK casualty, Lockton says new capacity entering the market is increasing competition and forcing insurers to rethink and moderate their desired rate increases. As for other classes, the cyber market seems to have reached a point of stability, with insurers taking the view that necessary changes to policy premiums and retentions are now in place, and new entrants to the market have increased competition to the benefit of insureds, the broker says. It adds that the challenging D&O insurance market conditions that prevailed in 2019/20 and part of 2021, are well and truly over, despite the underlying reasons for the hardening of the market not having disappeared. According to Lockton, ESG has become paramount to discussions around risk, with markets pushing to see corporate statements as part of renewal submissions. It says insurers may reduce capacity on a placement, withdraw from certain sectors, or decline risks which are perceived as ‘moral hazards’. “For clients, focus is on demonstrating ESG compliance. Board papers, corporate statements, and wider commentary around ESG implementation will all form part of a robust renewal submission,” Lockton says. The broker warns that higher-risk sectors continue to be met with caution from insurers, particularly those affected by insolvencies, natural perils, or political instability, and underwriters remain selective in their approach to these risks, and continue to seek assurances as to businesses’ mitigation efforts.

Strong competition sees improving market conditions, says Lockton

But hard market persists for sectors with greater exposure such as property

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