United States Q3 Market Dynamics


Landscape

The USA was hit by a fourth wave of COVID-19 in the third quarter of 2021, with the daily count of deaths reaching a seven-day moving average of nearly 2,000 in September. These deaths were overwhelmingly concentrated among the unvaccinated, and by late September around 56% of the population had been fully vaccinated. Various state governments ended lockdown measures in the first half of the year, although some preventative measures such as mask mandates were later reinstalled. Despite the impact of the virus, the economy has continued its recovery with GDP returning to its pre-pandemic level in real terms in the second quarter. The return to growth has seen inflation rise, reaching a 13-year high of 5.4% in June and July, although the Federal Reserve has held its target rate at 0%-0.25%.


Government plans for recovery include USD 1 trillion spending on infrastructure, although this and the ambitious ‘Build Back Better’ proposal for USD 3.5 trillion of social spending have proved contentious and as of the end of September remained subject to negotiation among lawmakers. The insurance market continues to show pricing increases across most products; however, the rate of change has decelerated, and a further deceleration is expected, with the key exception of Cyber, which continues to experience an escalation of loss frequency and severity.

Key Indices - United States


Market Dynamics

United States Featured Products Q3 2021


Q3 Automobile Summary

Overall (Stable) Automobile Liability continues to be pressured by growing loss trends. Traffic fatalities in the U.S. in 2020 were near all-time highs despite much lower levels of miles driven. Insurers continue to seek to strengthen rates.

Rates (+1-10%) Rates are increasing modestly – generally up to the low single digits for larger risks and slightly higher for middle market risks.

Capacity (Ample) Capacity is stable but has restricted compared to two to three years ago.

Underwriting (Prudent) Insurers are seeking to increase their understanding of risk-mitigating technologies including deployment of external and internal facing cameras.

Limits (Stable) Most risks have maintained consistent limits.

Deductibles (Stable) Most risks have maintained consistent risk retention levels.

Coverages (Stable) U.S. Automobile Liability is a highly regulated line so there is minimal coverage variation between insurers.

A Look Ahead (Stable) Risk differentiation will become more important as insurers provide more favorable terms to buyers who implement controls such has focused hiring practices, driver training, and technology initiatives. The market is expected to stabilize more overall but rates will continue to trend upward.


Q3 Casualty/Liability Summary

Overall (Stable) Rate increases continue across both primary General Liability risk transfer and Umbrella / Excess lines, however, at a much more moderate pace. New market entrants have created more competition. Insurers are concerned about potential latency related to COVID-19.

Rates (+1-10%) Primary General Liability rates this quarter have increased modestly, while Umbrella and Excess Lines have seen slightly higher increases.

Capacity (Ample) Capacity is sufficient for most risks and has improved in 2021. Insureds that buy very high towers of limits are facing constrained capacity.

Underwriting (Prudent) Underwriters are scrutinizing new and emerging risks including certain chemical compounds, climate change / fire exposures, and communicable diseases.

Limits (Stable) While most risks have maintained consistent limits, about 10% of larger risks have increased their limits this quarter. Others were able to complete intermediate layers of coverage that they were not able to place at a reasonable cost in 2020.

Deductibles (Stable) Most retentions and Umbrella/Excess attachment points have remained stable in the third quarter.

Coverages (Stable) Coverage is an important differentiator for insurers, particularly in competitive situations. Key coverage grants are generally attainable. There is greater focus on pandemic or epidemic exclusions, but the application thereof is not universal.

A Look Ahead (Stable) Continued moderation and improvement in pricing and capacity is expected, with a focus on rigorous underwriting. In the middle market space, multiple lines will continue to be packaged with the same insurer to achieve economies when possible.


Q3 Crisis Management Summary

Overall (Stable) Given the change in administration and priorities, increased political unrest, and the expanding reliance on global supply chains and partnerships, risk factors are increasing, and the market is modestly challenging overall.

Rates (+1-10%) There is a general deceleration of rate increases, and some previously adjusted policies are experiencing flat renewals.

Capacity (Ample) Capacity in the recall and political risk market is stable despite some movement in carriers and the opening of a new facility which is expected to formally enter the market in Q4.. Ample capacity is available for most risks; however, capacity is largely dependent upon the location of the risk (political risk) and/or the type of product risk (product recall).

Underwriting (Prudent) Underwriters continue to be cautious across most crisis management lines. Some insurers are looking to manage their limit profiles, resulting in smaller lines and larger syndication of programs overall. On the political risk side, market appetite continues to improve though underwriters remain cautious over the ongoing impacts of COVID on certain emerging markets. Insurers are also more cautious around political violence risks and foreign exchange transfer risks.

Limits (Stable) Limit requirements are being met by the markets in most cases. Client purchasing is at historic levels with only slight variances.

Deductibles (Stable) No significant changes in retentions across crisis management lines. Retentions are already significant given the catastrophic nature of the coverages.

Coverages (Stable) Given the worldwide supply chain challenges and their widespread business impacts, demand for Trade Disruption coverage has grown significantly, although insurer appetite to offer such coverage for “known risks” is limited.

A Look Ahead (Stable) Political Risk price increases will continue for policies priced pre-COVID but will remain flat for policies already adjusted. Increases will be higher for sovereign default risks (Contract Frustration) and projects that depend on financial commitments from host governments and/or state-owned entities. A significant electric vehicle / auto recall has hit the recall market which may increase rates in the non-food/auto recall market for the next several quarters.


Q3 Cyber Summary

Overall (Challenging) Loss frequency and severity has escalated – particularly related to ransomware – and insurers are remediating profitability concerns. Overall, the market remains very challenged, with very significant rate adjustments, combined with capacity withdrawals and ransomware clarifications and sublimits.

Rates (>+30%) Ransomware losses continue to create profitability challenges and insurers continue to remediate through material price adjustments.

Capacity (Constrained) Very few insurers have completely exited the market, but most are reducing their capacity. Smaller risks are finding some accommodation with Insuretechs.

Underwriting (Stringent) Underwriting is rigorous and supplemental applications related to Operational Technology (OT) and Ransomware are being required and scrutinized.

Limits (Decreasing) Limits reduction strategies are being leveraged by many insurers.

Deductibles (Increasing) Retention increases are being broadly required.

Coverages (Restricting) Ransomware coverage is often sub-limited or modified by a coinsurance provision. Infrastructure exclusions are being imposed and widespread cyber event potential has become a point of discussion.

A Look Ahead (Challenging) The market will remain hard. It may become difficult for some risks to find coverage if controls are not at a minimum acceptable standard.


Q3 Directors & Officers Summary

Overall (Stable) Upward pressure on rate continues, particularly in primary layers, while competition is emerging for favorable risks in excess layers.

Rates (+11-30%) Supply/demand is approaching parity owing to significant hard market price/capacity shocks over the past two to three years. Further, claims trends (by some measures) are moderating.

Capacity (Ample) Capacity is stabilizing, as new market entrants begin to provide support. However, that support is largely relegated to mid/high-excess attachments, so not yet impactful at primary and low excess layers.

Underwriting (Stringent) Continued caution, with extreme caution in pockets such as Fiduciary Liability / excessive fees.

Limits (Stable) Limits remain stable.

Deductibles (Stable) While D&O retentions (and most management liability retentions) are generally stable, Fiduciary Liability, retention adjustments can be dramatic (e.g., 5x to 30x expiring).

Coverages (Restricting) Insurers still seek to scale-back certain coverages, such as excess derivative demand investigative costs, opioid coverage, and silent cyber.

A Look Ahead (Stable) The D&O market will continue to trend close to parity/stability, although pockets of challenge (such as IPOs & SPACs) will continue.


Q3 Employers Liability/Workers Compensation Summary

Overall (Soft) Workers' Compensation continues to be one of the most profitable lines in the Commercial Insurance sector. Insurers are vigorously competing for business.

Rates (Flat) Workers' Compensation rates, on average, are very close to flat, within a tight range of -5% to +5%.

Capacity (Abundant) There is strong appetite in this space – filled with a number of strong insurers competing for Primary Casualty lines, focused on Workers' Compensation.

Underwriting (Flexible) Insurers are increasingly flexible in an effort to retain existing business and compete successfully on new business.

Limits (Stable) Limits are statutorily mandated for U.S. Workers' Compensation.

Deductibles (Stable) Deductibles have remained consistent.

Coverages (Stable) U.S. Workers' Compensation is highly regulated so there is little variation in coverage between insurers. As respects Excess Workers' Compensation for self-insurers, the trend is to remove aggregate retentions for communicable disease risks.

A Look Ahead (Stable) Continued favorable market conditions are expected. As insureds grow and the economy continues to recover, rates may come under some pressure.


Q3 Environmental Summary

Overall (Stable) The market is experiencing disruption in the Site Liability product line as another longstanding insurer has withdrawn. There are several risk transfer solutions provided by the market and each product is behaving differently, with Site Liability being most challenging and Contractors Pollution Liability, on the other hand, experiencing increased capacity and stable pricing.

Rates (+1-10%) Generally, pricing for Site products is increasing moderately while the market for higher risk products is demanding significant rate increases in addition to restricting coverages, reducing capacity, and shortening policy terms. Contractors Pollution coverage remains competitive, with new entrants bringing in new capacity which serves to temper any upward price movements.

Capacity (Constrained) Individual insurers are deploying capacity prudently and reducing limits offered to a single risk. This is more prevalent on Site Liability risks and has become particularly difficult for multi-national risks following the withdrawal of a large multi-national Site Liability insurer from the US market. As for Contractors Pollution Liability, capacity is stable as more new entrants enter the market.

Underwriting (Prudent) Underwriting risk appetites vary widely from insurer to insurer, with particular scrutiny on emerging contaminants and changes in regulation and enforcement attributable to the change in administration.

Limits (Stable) Limits remain stable; any changes are driven by size of operation, portfolio, pricing and other policy terms offered.

Deductible (Increasing) Increasing deductibles are being leveraged as an underwriting tool to manage both underwriting risk and pricing, particularly on Site Liability. Deductibles for Contractors Pollution Liability remain stable.

Coverages (Restricting) Litigation trends are driving underwriters to reconsider the coverages they offer. This is particularly apparent with emerging contaminants where there is uncertainty related to regulation and enforcement.

A Look Ahead (Stable) The environmental market is expected to remain stable through the next quarter.


Q3 Products Liability Summary

Overall (Stable) Rates continue to increase, but at a more moderate pace. Capacity is improving due to new market entrants.

Rates (+1-10%) Other than the most challenging risk types, rate increases are relatively modest. Capacity (Ample) Capacity has improved but is still not abundant. Most risks are able to secure adequate capacity.

Underwriting (Prudent) Advancements in science and improvements in transparency create more opportunity for underwriters to delve into more challenging questions, particularly with respect to key chemical compounds.

Limits (Stable) Most risks are renewing at the same limits.

Deductibles (Stable) Most risks are renewing at the same retention levels.

Coverages (Stable) Key coverages can be a market differentiator in competition. Most important coverage grants can still be secured.

A Look Ahead (Stable) Continued stabilization is expected in the absence of significant marketplace shock events.


Q3 Professional Indemnity Summary

Overall (Stable) An orderly correction continues. Rates continue to increase, but a deceleration of the increases continued this quarter in many segments of the market. Adequate capacity remains generally available.

Rates (+11-30%) Law, design firms and accounting firms are experiencing increases in the lower half of this range while increases in the consulting firm market are at the high end, and in some cases, exceed this range.   Pricing for higher attaching excess layers continues to be under pressure across all professional firms as a result of numerous claims in excess of $100M paid or reserved in the past two years. 

Capacity (Ample) A growing trend of conservative capacity management continued in the third quarter. However, new or relatively new market entrants have kept overall market capacity stable.  Segments of the consulting and design firm markets are in a constrained capacity environment.

Underwriting (Prudent) Underwriting remains stable. Underwriters remain concerned about pandemic-induced claims, economic-related or otherwise, potential exposure to claims from SPACs, and consulting firms’ exposure to opioid-related claims.

Limits (Stable) Nearly all firms renewing in Q3 were able to replicate expiring limits of liability with limited exceptions of nominal reductions (less than 5% of expiring limits) for firms purchasing in excess of $400M. A few firms increased limits the past quarter.

Deductibles (Stable) About 90% of firms renewed with their expiring retention level. The exceptions were mostly voluntary and not a significant increase in the amount of the retention. There were no decreases in retention level.

Coverages (Stable) The issue of "silent cyber" remains in the market but has caused minimal disruption on expiring policy wordings. Opioid exclusions are beginning to be required on consulting firm programs.

A Look Ahead (Stable) The orderly correction is likely to continue in the near term. Rate increases will continue to deaccelerate for law firms (excluding higher attaching excess layers) but may accelerate for other professional services firms. A modest increase in overall available capacity is expected as new entrants begin to assert themselves in the market. Exposure to the opioid crisis is likely to be a heightened underwriting issue going forward.


Q3 Property Summary

Overall (Stable) The Property market has stabilized materially for Q3. There is increased focus on property valuation.

Rates (+1-10%) Rate increases continue their 4th consecutive quarter of deceleration as more capacity enters the market and drives supply and demand. Industry classes such as food, habitational real estate, and chemicals – as well as risks with loss ratios greater than 100% - are experiencing more difficult conditions than well-performing risks.

Capacity (Ample) Capacity varies based on industry class and individual loss performance. It is not uncommon for favorable risks to be over-subscribed.

Underwriting (Prudent) Underwriters are focused in two areas - property valuation and time element, including contingent time element. Underwriters want to know how the property values reported were calculated as paid losses are trending above reported values. In addition, underwriters are asking clients to submit business interruption worksheets along with detailed business continuity plans.

Limits (Stable) Limits remain flat. Primary, first and second excess layers, for profitable classes of business, are attracting more competitive capacity and pricing opportunities via supply and demand economics.

Deductibles (Stable) Deductibles are trending 'as expiring’ in general, as average rate increases moderate.

Coverages (Stable) Insures are imposing restrictions on contingent time element; pushing for reduced limits for risks beyond first tier suppliers and customers. Some insurers are also introducing Occurrence Limit of Liability or Coinsurance Provisions to address the issue of underreporting of property values.

A Look Ahead (Stable) As the year closes, there will be a wait and see approach, as incurred and reserved global losses transition to paid losses. Global insured losses for the first half of the year are trending above the long-term average with global insured losses for H1 at approximately $55B – and the Q3 European floods and Hurricane Ida are expected to increase that figure to approximately $100B for 2021. The maturation of these losses over Q4 will play a large role in underwriting plans for Q1 2022. Losses to reinsurers from Ida and the European floods will likely be passed along to insurers as increased reinsurance premium for CAT treaties that renew on January 1, 2022.


Q3 Trade Credit Summary

Overall (Stable) Losses have not materialized as expected, leading to improved market conditions and increasing risk appetite. Conditions are expected to continue, assuming generally positive economic trends and continued less-than-expected claims activity. There is a growing interest in credit mitigation products.

Rates (+1-10%) Rate increases continue to decelerate given the growth in competition as well as insurer year-end growth/renewal objectives.

Capacity (Ample) Capacity is sufficient – even as many insureds opt to increase their limits.

Underwriting (Prudent) Information requests are more detailed and wording clarifications are the norm, even on legacy programs with no loss experience. Underwriters are looking carefully at the impact of supply chain issues on 3Q earnings, as some sectors are expected to show decelerating growth and higher costs. There is a focus on companies' preparedness for further COVID-19 related business disruptions.

Limits (Increasing) Given a growth in sales, many clients are requesting limits increases which in most cases are approved by the insurers.

Deductibles (Stable) Deductibles are stable for well-performing risks. There is a trend to remarket more frequently to assess the market’s view of deductibles and rates.

Coverages (Stable) Coverage is generally stable; however, there is limited coverage availability for businesses in certain sectors which continue to experience financial stress.

A Look Ahead (Stable) Improved market conditions are expected, provided credit quality continues its positive trend. Two areas to watch are: 1) the credit risk impact on climate change, as the ratings agencies have indicated that the credit risk of major oil producers has increased, and 2) issues in China related to power shortages and their impact on supply chains; the property market, and the ongoing development of COVID-19.