Inflation, supply chain issues, labor shortages, cyber attacks, natural disasters and rising jury prices and all key factors affecting the current state of the insurance market. Insurance rates continue to rise, but some lines see higher rate increases than others. Underwriting capacity also varies between different lines and sectors.
In the personal insurance market, insurance prices have continued to increase. According to MarketScout, the U.S. compound interest rate rose 4.58% in the third quarter. Homeowners with values above $1 million saw interest rate increases of 6%, but homes with lower values saw smaller rate increases of 4%. Car insurance rose by 4.3 percent.
In Florida, Hurricane Ian is expected to put pressure on an already troubled insurance market. NPR explains that Florida homeowners were already paying the highest insurance premiums in the country, and several carriers have recently declared insolvency. Losses from the hurricane could make the situation even worse.
Commercial Lines Insurance
Insurance prices are also increasing in the commercial market. According to MarketScout, the compound interest rate in the commercial market increased by 5.28% in the third quarter of 2022. Both commercial real estate prices and commercial auto prices increased by 7.67%.
MarketScout says increased capacity has helped the D&O and professional insurance sectors, but D&O rates were still up 7% and professional liability was up 5.7%. Employment responsibility increased by 4.3%.
Cyber rates have continued to experience double-digit increases. The Council of Insurance Agents & Brokers (CIAB) says cyber rates increased 34.3% in the fourth quarter of 2021, 27.5% in the first quarter of 2022 and 26.8% in the second quarter of 2022. Cyber insurers are also asking more questions during the underwriting process and policyholders must have risk management controls in place.
Cyberattacks are driving these steep rate hikes. According to the IBM Security X-Force Threat Intelligence Index 2022, the most targeted industry is manufacturing, followed by finance and insurance, professional and business services, energy, and retail and wholesale. Ransomware is the top attack type, but other attacks include corporate email compromise schemes, server access, data theft, and credential harvesting.
Despite interest rate increases and increased scrutiny of underwriting, the demand for cyber remains high. CIAB says 85% of respondents report increased demand.
The construction sector
Within the broader commercial segment, the construction sector faces several challenges. In a survey by the Associated General Contractors of America (AGC), 91% of construction companies say they are having trouble finding workers, and this labor shortage is leading to project delays and higher costs. Although there are job seekers, 77% of companies say they struggle to find workers who have the right skills and can pass a drug test.
Meanwhile, supply chain problems and rising costs are also putting pressure on the construction industry. Business Insurance says construction input costs have increased 40.5% since February 2020, based on data from Associated Builders and Contractors, while CBRE Inc’s Construction Cost Index predicts a 14.1% year-over-year increase in construction costs at the end of 2022. Contractors and project owners are dealing with fixed prices and reduced capacity, and this can make securing insurance coverage and scheduling projects.
According to the CIAB, construction insurance prices increased by an average of 4.2% in the second quarter of 2022. The report also found that 37% of respondents observed an increase in demand for construction risk coverage.
Rising Jury Awards and Third Party Funding
Rising jury awards are another factor affecting the commercial insurance market.
The upward trend in jury prices is often called social inflation, and it can be much steeper than ordinary inflation. A Swiss Re report has shown how third-party litigation funding has increased in recent years, and the Insurance Information Institute explains that third-party funding can fuel social inflation and lead to longer litigation, ultimately leading to higher insurance rates.
The effect is seen across several sectors, including commercial auto and construction coverage. Business Insurance says policyholders in the construction sector face reduced limits due to fears of nuclear doomsday and a backlog of cases from pandemic lockdowns. In the commercial auto sector, Risk & Insurance says third-party litigation has increased rapidly, and cases are taking much longer to resolve as a result.
Navigate the insurance market
With rising interest rates and reduced capacity, the current state of the insurance market makes securing the coverage you need especially challenging. The insurance and risk advisors at BNC can help. Contact Us.