2023 P&C Outlook: Assessing the impact of higher rates & greater underwriter scrutiny

Businesses seeking renewals or new property and casualty insurance (P&C) coverage over the coming year will continue to encounter rate increases and greater underwriter scrutiny as insurers remain guarded due to ongoing economic uncertainty and the major impact of catastrophic weather events on property coverage. Inflation and court-related claims are also contributing to reduced market capacity, leading to increased emphasis on layered insurance coverage and clients assuming more risks going forward, Alera Group’s 2023 Property and Casualty Market Outlook reports.

Rate increases, access and capacity will vary significantly from industry to industry and region to region. Specifically, pricing will be influenced by the client’s industry, location relative to catastrophe-prone (CAT) areas, loss history and the effectiveness of its risk management strategy. Overall, pricing is expected to increase 9.3% in 2023, down from 11.1% the prior year.

Commercial property will experience the highest rate increases, followed by cyber (15%) and personal lines (12.8%). Workers’ compensation is projected to have the smallest price increase at 0.3%. It’s important to note the Market Outlook is based on the Alera Group Market Survey, which was conducted prior to Hurricane Ian and does not reflect the storm’s significant impact on the insurance market.

Capacity and availability vary by service line

Due to overall reduced market capacity, many insurers are unwilling to allocate the same capacity to a single risk as they have in the past. As a result, clients are having to spread risks across carriers and take on more risk going forward. Commercial property is a prime example. The occurrence of numerous severe catastrophic losses in recent years has resulted in higher costs for property insurance and reinsurance. According to the world’s largest reinsurer, Munich Re, losses from natural catastrophes covered by insurance totaled an estimated $120 billion in 2022 alone — similar to the total for the previous year.

Responding to such losses, as well as a combination of inflation-driven costs and supply chain issues for labor and materials, insurers are reducing coverage and increasing deductibles. Policyholders in CAT-prone areas may see rate increases in excess of 50% combined with higher deductibles.

Still, survey respondents anticipate little change in availability over the coming year across most lines of business. The availability and capacity of directors and officers (D&O) coverage will improve, as new players have entered the space. Layered coverage may still be necessary as carriers limit coverage, particularly for limits above $5 million. The availability of cyber liability insurance, however, is expected to diminish. Sixty-four percent of survey respondents believe cyber coverage will be stable in 2023, down from 75% in 2022, with rates increasing as much as 50% in 2023. Rates for cyber coverage are expected to level off in the near future, to about 15% for less complicated risks as the market gains experience, introduces more limited coverages and exclusions, and offers lower limits.

Industry outlook

The outlook across industries remains relatively stable for 2023, with some exceptions. The insurance market for hospitality and gaming remains challenging, with no relief in sight. Labor shortages are a main factor — among housekeeping and security in particular — raising carriers’ concerns about a potential increase in claims. In addition, large losses from national disasters and extreme jury verdicts have left carriers reluctant to take on more exposures within the industry.

Obtaining coverage for nonprofits will continue to be difficult despite new entrants in the market. Given the broad range of risks nonprofit organizations face, insurers will be selective in which organizations they are willing to cover. Nonprofits remain targets for cybercrimes, making it harder and costlier to obtain cyber coverage. And coverage for sexual abuse and molestation will be hard to purchase as carriers limit capacity in this area.

Tips for coverage in a seller’s market

As the seller’s market continues, insurance buyers must work diligently to position their organizations favorably. It’s critical to start the process early; building a thorough submission takes time. Carriers are experiencing an increase in submissions, as well as a shortage of experienced workers, so it’s essential to allot time for review (at least 90-120 days before the policy expires). Meet with your carrier to discuss any changes in work processes, services, products or geographic footprint that may affect your coverage needs.

Always be proactive in managing risks. This is critical, especially in more challenging times, when underwriters are paying closer attention to submissions. A thorough risk management strategy will help secure the most favorable rates, terms and capacity. Make sure to implement any risk control recommendations provided by the carrier, agent or broker. This will demonstrate the organization’s commitment to risk management, and insurers will check to see if you’ve followed through with their recommendations. Details matter. Review the claim prior to submission for accuracy and ensure it tells a complete, compelling story about why the insurer should invest in your organization.

For many organizations, rising costs will lead to tough decisions. Insurance buyers should work closely with their broker to assess the financial impact of the choices they need to make and the steps they need to take to mitigate the impact. This includes setting adequate property values that reflect the rising costs to repair or replace buildings and other structures.

The seller’s market is likely to remain for at least the near term. By following these key steps, businesses can ensure they are in the best position to protect their operations and navigate evolving risks in the future.

Mark Englert is executive vice president and property and casualty practice leader for the Alera Group. Contact him at mark.englert@aleragroup.com.

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