2023 Property & Casualty Market Outlook

Introduction

Since 2019, the commercial insurance industry has been grappling with a hardening marketplace, one characterized by increased premiums, stringent underwriting criteria, restricted terms of coverage and less competition amongst insurance carriers. This was caused by a combination of increased claim frequency and severity, increasing jury awards in liability cases, lasting complications created by the COVID-19 pandemic, evolving cyber security threats and natural catastrophes causing large-scale property damage.

Trends to Watch

As we enter 2023, developing trends such as labor shortages, supply chain disruptions, and inflation issues will continue to have a direct impact on insurance buyers. However, for the first time in three years we are seeing such volatile industry conditions begin to stabilize for organizations with above-average risk profiles or exposures. When looking ahead, there are some notable trends that are impacting insurance buyers across many industries.

Labor Shortages – Labor shortages continue to present challenges for employers, impacting businesses of all industries and sizes. A recent survey conducted by Provident Bank identified that 75% of businesses have been affected by current worker shortages. To help combat various workforce movements, many employers have adjusted their hiring and retention strategies.

Supply Chain Disruptions – While most businesses have resumed normal operations and increased production levels since the dark days of the pandemic, consumer demand in many industries continues to outweigh inventory and shipping capabilities. Rising fuel costs, the ongoing shortage of labor, and extreme weather events have only added to the supply chain bottlenecks mostly impacting employers in the manufacturing, construction, and retail sectors.

Inflation Issues – Labor shortages and supply chain disruptions have largely contributed to rising inflation concerns in the commercial insurance industry. According to recent BLS data, the 2022 consumer price index (CPI) for urban consumers increased by 9.1% year over year in June 2022, a 40-year high. The elevated CPI has driven up claim costs across several lines of insurance, inflating the total loss experience of the property & casualty industry.

Notable Coverage Lines

Certain coverage lines such as Property, Umbrella, Employment Practices Liability (EPLI), and Cyber liability will continue to drive hard market conditions while others such as Workers Compensation will provide opportunities to leverage market competition.

Property – The economic trends described above are directly impacting construction costs and property replacement values. Significant natural events including Hurricane Ian, flooding in Kentucky and Tennessee and wildfires in the Northwest have also contributed to rate increases. It’s imperative to individuals and corporations review their property coverage limits and make adjustments according to replacement costs in today’s dollars. The Council of Insurance Agents & Brokers (CIAB) Q3 2022 Property & Casualty Market Report indicated a 11.2% average increase in commercial property rates.

Auto – The auto insurance market has experienced substantial challenges in recent years stemming from surging accident frequency and severity, numerous road safety challenges, widespread driver shortages, and the increase of nuclear jury verdicts. These trends have led to poor underwriting results for insurance companies, resulting in 45 consecutive quarters of auto premium increases passed onto insureds, according to CIAB. The CIAB Q3 Property & Casualty Market Report indicated a 7.6% average increase in commercial auto rates.

Umbrella – The umbrella and excess liability markets continue to be adversely impacted by large claim trends. Social inflation, third-party litigation funding and tort reform have accelerated the frequency of large settlements and jury verdicts. The CIAB Q3 Property & Casualty Market Report indicated a 11.3% average increase in commercial Umbrella rates.

Employment Related Practices Liability (EPLI) – Labor shortages in some industries, coupled with recent mass layoffs in others, has already resulted in an uptick of Employment-related claims. In response, underwriting is beginning to tighten for both first-time buyers as well as on renewal policies. When providing information that may be perceived as unfavorable to underwriting (i.e. recent downsizing), it’s important to provide additional details of why decisions were made and the steps your company has taken to avoid potential litigation from current and former employees. Consider including a narrative attached to general application submissions.

Cyber  – Cyber insurance has been a source of pain for many employers in recent years. Ransomware attacks and data breaches have led insurers to drastically increase premiums, limit coverage, and demand greater network security requirements from employers. According to recent CIAB industry data, many insureds experienced 50%-100% rate increases in 2022. All organizations, regardless of size or industry, should continue to prioritize their cyber hygiene and network security.

Workers Compensation – Workers Compensation rates are expected to remain stable in 2023, as underwriting results have been favorable in recent years. Carrier competition for this coverage line is strong, which will continue to drive down rates and offset increases in other challenging lines. The CIAB Q3 Property & Casualty Market Report indicated a -0.7% average decrease in Workers Compensation rates.

Tips moving forward

While the insurance market outlook has been grim in recent years, we expect the turmoil to marginally stabilize in 2023. For employers, it’s important to focus on what you can control. That is, implementing solid risk management strategies to minimize claim history and improve your risk profile. It is equally important to align yourself with an experienced insurance broker who will proactively differentiate your business to the underwriting community and evaluate alternative risk financing options where appropriate.

Contact Us:

Gregory L. Chaples, CIC

Vice President - Property & Casualty

gchaples@capstonegrp.com

Office: 215-542-8030

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We’re in a Hard Market … What Now?

Introduction

The commercial insurance marketplace is cyclical. A “hard market” is characterized by rising rates and premiums and a tightening of capacity, or an insurers unwillingness to provide coverage and limits they were previously comfortable providing. For the first time in nearly 20 years, the insurance marketplace began to harden in 2019 and has only been exasperated by recent current events, i.e. supply chain issues, political & social unrest, inflation, and general economic uncertainty.

A hard insurance market impacts all consumers of traditional commercial insurance products: small and large businesses, for profit and non-profit, private, and publicly traded organizations. Some industries and lines of coverage are impacted more than others. This article is intended to educate business owners and executives on how to properly prepare and identify a few strategies to consider to best navigate these challenges.

Hardest-Hit Coverages

Coming into 2022, most analysts were predicting between 12% - 15% price increases across all lines of commercial insurance. The lines driving those increases include:

• Commercial Property: Fueled by continued increases in damages caused by weather & climate-related disasters. Especially for higher-value property schedules and higher-hazard operations.

• Umbrella/Excess Liability: Historically pricing has been lower-cost, more stable. Recent trends such as nuclear verdicts and litigation funding are resulting in exceptionally high jury awards that drastically increase claim costs.

• Management Liability (D&O and Employment Practices Liability): Driven by many socioeconomic factors, including: increased M&A activity, Pandemic-related layoffs, and “social inflation”

• Cyber Liability: Cyber insurance is experiencing a hardening market on rocket fuel. We are seeing unprecedent sharp increases in claims activity, rate increases, and coverage changes in a relatively short period of time. It’s more important now than ever to work with forward-thinking insurance advisors who understand the evolving coverage forms and have access to a broad range of cyber providers to adequately navigate these challenges. To read more on this topic, check out our article published by the Delaware Valley Family Business Center.

Navigating Choppy Waters

While the outlook may seem grim in the short-term, there is hope for those organizations willing to prioritize their risk profile and align themselves with an advisor who will strategically approach the marketplace and prepare alternative options on their behalf. The current market conditions make alternative funding options, such as large deductible or Captive arrangements, viable and attractive solutions for many organizations looking to regain control of their insurance costs.

• Prioritize Your “Risk Profile” –  As insurance carriers look to recover losses from rapidly increasing claim activity and historically underpriced polices, underwriters are under immense pressure to carefully evaluate each renewal. The carrier’s pricing and coverage offerings will be heavily influenced by your “Risk Profile”. That is, the frequency and severity of claims along with the presence of proactive risk management and loss control programs. If you have experienced claims in the past, consider what could be done to prevent such incidents from reoccurring in the future. It’s also a great time to revamp (or implement) a strategic safety & loss control program that addresses exposures unique to your organization. Best-in-class organizations, when presented as such to the insurance carrier community, receive the best pricing and coverage.

• Start Early, Have a Plan – Many organizations scramble to find alternatives after receiving unfavorable, last-minute renewal quotes from incumbent carriers. Often, these unpleasant surprises come with little warning or justification. For this reason, it’s important to start the process early, particularly when involving multiple carriers in the quoting process. Equally important is the quality of information being submitted to the insurance company when quoting. The “submission” should be detailed, accurate and complete, ultimately telling a favorable story about your organization to the underwriting community. This process creates competition amongst insurance carriers, giving you confidence that you’re receiving the best pricing and coverage terms available in the marketplace.

• Identify “Softer” Lines - Fortunately for consumers, not all lines of coverage are hardening at once. Our team continues to deliver more manageable increases, and even rate decreases, in select coverage lines that should be negotiated aggressively during annual renewals in order to help offset any unavoidable increases in the lines mentioned above.

• Consider Alternative Risk Financing

  As stated in the beginning of this article, a hard insurance market impacts all consumers of traditional, “guaranteed-cost” commercial insurance. So, what about non-traditional or alternative options?

  Alternatives such as self-insurance and Captive Insurance Arrangements (“Captives”) can certainly provide a hedge against fluctuating market cycles. On a basic level, a captive is an insurance company that is wholly owned and controlled by its insureds. Thus, giving control and potential underwriting profits back to the organizations themselves as opposed to the insurance company.

  In response to rising rates and dwindling capacity, our team has certainly seen an uptick in interest in captives, but it’s important to note that these arrangements are not a fit for all organizations. For starters, there are minimum premium thresholds for most captive programs (starting at $100,000 in combined workers compensation, general & auto liability premiums). Additionally, due to funding arrangements and the risk-sharing nature of group captives, these programs are only advantageous for financially stable, well-run organizations with a dedicated focus on safety and a favorable claims history.

Conclusion

While we hope we are starting to turn a corner in the hardening market cycle, we are still diligently guiding our clients through challenging 2022 renewals that will likely extend into next year. Please consider us a resource and feel free to reach out to discuss your organizations’ unique situation.

Contact Us:

Kevin M. Fox, CIC

Managing Partner

kmfox@capstonegrp.com

Office: 215-542-8030

Thomas Fox named as Risk Management Advisor

We are pleased to announce the promotion of Thomas Fox to the position of Risk Management Advisor within Capstone’s Commercial Property & Casualty division, effective March 1st, 2021.  

Since joining Capstone in 2019, Tom has been an integral part of Capstone’s client services team, serving as both an Assistant Account Manager and an Account Executive. In those roles, Tom was responsible for overseeing the day-to-day insurance and complex risk management needs of corporations and non-profit organizations of all sizes.

Through his training and experience, Tom has developed a skillset that makes him an asset to Capstone’s current and prospective clients, including but not limited to: safety & risk assessments, contract reviews, claims management, cost & coverage analysis, and carrier negotiations.

In his new capacity as a Risk Management Advisor, Tom will be responsible for business development and identifying organization that would benefit for the products and services offered by Capstone’s Commercial Property & Casualty division. In addition to making connections within his personal network, Tom will also represent Capstone within the many organizations and associations the firm currently supports, including the Philadelphia Chamber of Commerce, the MidAtlantic Employers Association, and Life Sciences PA.

Tom is a graduate of St. Joseph’s University in Philadelphia and currently resides in the city’s Fairmount neighborhood. He is passionate about expanding his knowledge and following trends of the evolving insurance industry and was recently awarded the Commercial Lines Coverage Specialist (CLCS) designation.

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Contact Information:

Thomas Fox

tfox@capstoneinsgroup.com

Phone: 215-542-8030

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$1 Million Doesn't Go As Far As It Used To

Umbrella Coverage

One million dollars doesn’t provide as much protection as it used to. Are you  adequately covered when an unexpected loss occurs? Are you being offered an umbrella quote? Even a small business can be exposed to a catastrophic event from an auto or a GL loss. At Selective, our umbrella policy can provide you with greater protection at a reasonable cost. 

Limits and Coverages

Should that large car accident or product/completed operations claim occur, don’t jeopardize your business by providing only $1 million in coverage. Selective’s umbrella policy offers broad coverages and may provide up to $25M in limits. Some of the coverages available include:

• Automatic coverage for additional insureds
• Expanded coverage territory
• Extension of the designated location and designated aggregate per project into the umbrella
• Primary and non-contributory coverage available
• Coverage available above your professional liability coverages

Easy to Quote

Selective has the ability to provide you the protection you need. In our One & Done® system, just select an umbrella and the limit; the system automatically generates a competitive quote and allows your insurance agency to bind and issue coverage up to $5 million. If you want higher limits, talk to your agent so they can meet your individual needs.

General Liability and Adequately Insured Subcontractors

Our premium auditors often get the question, “Why do we charge for subcontractors?” The answer is simple: contractors who hire subcontractors are exposed to vicarious liability and could have claims brought against them as a result. The premium charged for adequately insured subcontractors helps offset the costs of defense and judgments that may be brought against the hiring contractor. These could include subcontractors’ torts, negligence or inadequate limits of insurance. 

The basis of premium charged for adequately insured subcontractors is “total cost.” By definition, total cost includes all labor, materials and equipment furnished, used or delivered for use in the execution of the work. However, it does not include the cost of furnished equipment installed but not furnished by the subcontractor, if the subcontractor does no other work on or in connection with such equipment. Total cost also includes all fees, bonuses or commissions made, paid or due. 

By definition alone, this is a more complicated topic than it would appear on the surface. Many insureds are confused by the inclusion of materials in their premium charge. However, it is important that your clients include the proper costs at the time the policy is written to help avoid problems at time of audit.