The mood is optimistic as insurance organizations report their full-year results for 2021. After three years of carriers raising rates, restricting limits, and increasing deductibles, the property and casualty (P&C) insurance market is approaching a point of rate adequacy. That has made the market more attractive, according to Gallagher, and has resulted in a number of new market entrants and increased competition as underwriters look to write new business.
However, the brokerage giant still described 2021 as “a challenging market overall” in its latest Winter Market Report, with clients facing significant difficulties trying to find coverage, with capacity issues and rate increases as high as 50-100%. Gallagher blamed these challenges on a confluence of factors, including social inflation, increased storm activity, pandemic losses, and the low interest rate environment impacting insurers’ investment income.
“The overall market conditions and the pricing environment continue to be a challenge for everyone,” said Linton B. Puckett, market relations leader, Gallagher Global Brokerage, at the broker’s Futurecast virtual event. “This market really began to firm in 2018, so we’re entering our fifth year of this hard market. We know these cost increases have been challenging for our clients, especially over the past two years where we’ve faced so much uncertainty.
“But there is good news to report. We are seeing rate moderation across the marketplace. After four years of increases, carriers are posting much stronger results. That being said, I think the carriers are going to continue to stay disciplined, they’re going to continue to push rate increases, especially towards businesses with challenging risk profiles. We meet with the executives of our carrier partners, and there are still a lot of areas of concerns right now.
“Inflation - certainly that’s going to push up loss costs, and ultimately, that’s going to have to be passed through premium dollars. The storm losses that we continue to see on a more frequent basis, whether it be catastrophic [or] what we call secondary perils - the trends are rising, and the pricing models are having to keep pace. And then social inflation - it’s real, it hasn’t gone away, and we’re going to have to continue to see how this develops as the backlog of [court] cases begins to move through the system.”
Despite these challenges, there are opportunities for brokers in 2022 as rate adequacy continues to improve and there’s more competition in the P&C marketplace. But if a client chooses to re-market their business, Puckett stressed that it’s important for brokers to start the process early, and to provide the markets with a complete submission, supported by good data and updated values.
Bill Baker, head of sales & Gallagher CORE360 at Gallagher Global Brokerage, added: “I think one of the possible themes that could be in 2022 is this pursuit of this flight to quality. Market submission [is] a huge topic with many dimensions, but I think we can all agree that the higher the quality of what’s presented to the underwriters results in better outcomes.
“[A complete submission should include a] statement of values with complete COPE data [construction occupancy protection exposure], including secondary COPE information, updated property and business interruption values that consider inflation trends, really customized coverage requests, loss control reports that support that this is a better risk - the list just goes on and on. It doesn’t have to happen overnight, but it can start now, and these efforts can be supported by new analytical platforms that are being added to our world every day.”
Looking ahead to the remainder of 2022, Gallagher expects that modest rate reductions may be attainable for clients with an attractive risk profile that have not been out to market in years. However, placements will likely remain challenging for those with elevated risk profiles, and accounts that have experienced losses.