Over the past 24 months, the insurance industry has embodied the maxim that crises offer opportunities. Clients and insurers have confronted a pandemic, economic downturn, a hard market, civil commotion, increased natural catastrophes and a sudden shift to remote work. The pain has been widespread, but the industry has risen to the challenge, embracing technology and achieving sustainable gains in cost, productivity and service levels.
As Lockton’s September Market Update (opens a new window) notes, the crisis is not over but the industry is benefiting from positive developments, including an improved U.S. economy. The vaccination rollout has enabled people to travel and socialize. Businesses have reopened to strong demand, confirming economists’ forecasts for explosive 2021 growth. A higher level of government spending could fuel additional growth. The insurance marketplace has become more predictable, with carriers having restructured their portfolios and benefiting from higher exposures, retentions, attachments and rates. A sampling of top insurance companies revealed much improved second-quarter results.
In this update, we offer observations on the macroenvironment and other major forces impacting our clients, including:
Improved industry profitability, rooted in higher rates, better business mix, changes in program structure, and revised terms.
Increased net written premium, fueled by economic growth and firming rates.
The potential impact of the Biden administration’s infrastructure initiatives.
The possibility for even greater turbulence in the cyber sphere.
Risks to directors and officers liability coverage posed by the spectacular rise of special purpose acquisition companies.
Uncertainty caused by the pandemic-driven litigation backlog.
Continued losses from more frequent and severe natural catastrophes.
The potential for client earnings volatility from lower limits as well as elevated retentions and attachment points.
The prospect for continued rate increases, albeit at a slower pace, due to low bond yields and loss cost inflation.
Although COVID-19 still looms large, overall we remain more optimistic about the market. With improving profitability, major insurers have signaled a desire to grow, and new capacity and flexibility will only improve the competitive outlook. Risk quality, losses and industry sector matter, but clients are now better able to differentiate themselves. Analytics continue to play a major role in the marketing process and help guide negotiations around program design and pricing. Alternative risk vehicles have moved to the forefront, helping to facilitate coverage and pricing arbitrage.
Amid so much change, the one constant that we envision is a continued potential for evolution in the insurance marketplace. We invite you to stay informed by reading the September Lockton Market Update (opens a new window).