US Pricing Q3 2022

Property insurance rises at increased pace

Insurance pricing in the third quarter of 2022 in the US increased by 5%, compared to 10% in the prior quarter

Property insurance pricing increased 8% in the third quarter, up from 6% in the second; this is the twentieth consecutive quarter in which pricing rose.

• Exposure growth, or total insured values, increased by 8% in the quarter.
• The rate increases experienced by clients in the third quarter were driven by changes in the treaty and facultative reinsurance markets at mid-year.
• Valuation was a focal point for property insurers on virtually every renewal, due largely to concerns about the current inflationary environment, supply chain challenges, labor shortages, and loss experience where adjusted loss amounts were well above the reported values.

Casualty insurance pricing increased3% compared to a rise of 6% in the prior quarter; excluding workers’ compensation, the increase was 5%.

• Insurers carefully monitored areas including inflation, court systems reopening, increased numbers of vehicles on the road, and recent hurricanes.
• The primary casualty market remained generally competitive; however, insurers continued to seek increases in some areas.
• Casualty insurance pricing continued to be driven by workers’ compensation, as well as a moderation of increases for umbrella and excess liability, which helped lower the average rate increases on auto insurance.
• Incumbent insurers typically offered terms aimed at keeping casualty clients from going to market at renewal.
• Excess liability rates increased 7%, compared to 16% in the second quarter as the market continued to benefit from new entrants and increased competition.
  • Insurers continued to monitor for loss trends moving higher as courts that were closed due to COVID-19 continued to reopen and cases moved at a faster pace through the system.
  • Underwriters expressed increased concern regarding latency risks, such as per- and polyfluoroalkyl/perfluorooctane sulfonate (PFAS/ PFOS), so-called “forever chemicals.”

Financial and professional lines pricing decreased 6% in the quarter — a decline from the second quarter increase of 21%.

• Pricing decreased by 9% for directors and officers (D&O) liability coverage for publicly traded companies, driven by new capacity and competition and following a 6% decline in the second quarter.
  • Carriers were generally willing to increase capacity on towers, eliminating the need to have as many insurers on a program.
  • In August 2022, 87% of renewals experienced a total program decrease.
  • Carriers looked to relationships on other, more challenging coverages — such as cyber and fiduciary liability — as they sought to win layers on D&O coverage.
• Fiduciary markets continued to be challenged by adverse judgements and ERISA 401k plan excessive fee litigation; insurers expressed concern regarding the product’s pricing unpredictability.

Cyber insurance pricing increased 48% in the third quarter, compared to 79% in the prior quarter.

• The cyber insurance market experienced increased competition; more insurers increased capacity for insureds with strong cybersecurity controls.
• Increased competition is due to many factors, including: improved cybersecurity controls, the effect of retention level increases and rate adjustments in 2021, reduction in claims frequency over the past six months despite no change in severity, according to many insurers, and higher interest rates leading to insurers seeking top line growth.
• Discussions continued in the industry and in government regarding systemic exposures and the correlated nature of cyber risk.