Will the P&C insurance market stabilize in 2024?
This year, homeowners in catastrophe-prone areas can expect rate increases of as much as 25%, Alera Group reports.
Though unfavorable conditions for buyers in the P&C insurance market come to be expected, 2024 has shown signs of positive changes to come. New capacity is coming into the marketplace, and price increases will continue at a moderate rate. Reinsurers also have a fuller understanding of their willingness and commitment toward underwriting business.
Some lines of business, however, are still challenging. Recent losses and unprofitable trends in personal insurance lines such as home and auto have significantly impacted pricing and availability in areas prone to catastrophes and in states where current regulations hinder proper rate adequacy. According to Alera Group’s 2024 Property and Casualty Market Outlook, homeowners in catastrophe-prone areas can expect rate increases of as much as 25%.
To help insurance companies and professionals navigate the P&C market in 2024, Alera Group provided some key findings in its P&C Market Outlook, including current trends within the P&C insurance market and the drivers behind the current state of the industry.
Rate increase, capacity improvement variations
Alera Group’s recent P&C Market Outlook shows that prices will continue to go up in 2024, with most lines of business likely to experience a 1%-10% increase. Commercial auto and Commercial property, however, are going to witness more challenging increases, with a 10%-15% projected price increase, due to loss severity and frequency, higher repair costs and extreme weather events. It’s also worth noting that public and private directors and officers liability (D&O) and workers’ compensation will witness a 1%-10% price decrease as rates cover loss costs and markets are stabilized.
Capacity is expected to improve in some lines, such as D&O, environmental liability, surety bonds and workers’ compensation. Other lines such as commercial auto, commercial property, environmental liability, medical malpractice and personal lines/private risk will witness capacity decrease in 2024. As a result, underwriters will continue to be selective and have more rigorous underwriting standards for commercial auto, medical malpractice and umbrella/excess liability.
Factors influencing the P&C market in 2024
Among the most difficult challenges leaders face are understanding the current market and using that knowledge to prepare for what lies ahead. Insurance professionals need to comprehend and analyze the various factors influencing the current P&C market to better increase their level of control, fully explore options and find solutions that support their continued success. Professionals need to keep a close eye on the following factors…
Inflation
According to data released by the Labor Department in January, the overall cost of living in December increased by 3.4% from the previous year, which is slightly higher than the increase rate of 3.1% in November. The cost of auto insurance also went up by 1.5% in December compared to the previous month, with an overall increase of 20.3% from the previous year.
Skyrocketing inflation has driven up costs on multiple fronts, including building materials, replacement parts, labor, medical expenses, attorney fees and settlement amounts. As a consequence, reinsurance costs rise during periods of high inflation, which leads to insurers introducing higher premiums for policyholders.
Extreme weather events
The National Centers for Environmental Information states that the United States has experienced 376 weather/climate disasters since 1980, and there were 28 confirmed disasters in 2023 alone. The total cost of these 376 events exceeds $2.655 trillion.
These extreme weather events have significantly impacted the insurance industry and consumers. Several property insurers in the U.S., including Allstate, American Family, Erie Insurance Group and Berkshire Hathaway, have informed regulators that they have stopped providing coverage in certain regions, excluded protection from various weather events, and increased monthly premiums and deductibles as a result of the rising costs needed to cover these events effectively. With more expected extreme weather events fueled by climate change, there’s no doubt that property and businesses with historical losses or locations in catastrophe-prone regions should anticipate higher rate increases, capacity decreases and stricter underwriting scrutiny.
Profitability needs
Insurers have been able to strengthen their profitability due to rate increases, better underwriting practices and higher investment returns. Despite this, the P&C industry is still not earning enough to cover its cost of capital. Economists predict that, in most markets, the industry will not be able to generate sufficient returns to cover its cost of capital in 2024 or 2025 due to the rising expense of litigation and economic inflation, which leads to higher claims costs.
Navigating the P&C Market in 2024
Conditions throughout 2024 will likely be similar to 2023, despite the increased stability and easing of rates and availability. As mentioned, the market will remain challenging for several lines of business. Companies and professionals need to take a proactive approach to assess risks and take control of their insurance. Insurance companies value businesses that understand risks and have effective strategies to minimize them. Managing risk well leads to more favorable pricing, terms and conditions.
Given the current market conditions, it’s important for your broker to provide you with fully informed opinions and recommendations. Rather than solely relying on your broker, however, you need to take an active role in marketing your business to underwriters, in telling a convincing story that highlights the strengths of your organization, your plans for the future, the quality of your management team and your efforts to manage risks.
Mark Englert is executive vice president and national property and casualty leader at Alera Group.
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