The Mid-2020 Commercial Insurance Market Amid COVID, Cat Predictions, Social Inflation & More

Until COVID-19 became a household name in March of this year the hardened commercial insurance market seemed like it would be the insurance story of 2020 and, while the pandemic has understandably permeated every aspect of our society, the commercial insurance market continues to present business leaders with a variety of challenges related to cost and the availability of coverage.  

Consider, for example, the well-respected Commercial Lines Pricing Survey (CLIPS) that Willis Towers Watson has operated since 2003. The most recent CLIPS survey data is just out (https://www.willistowerswatson.com/en-US/Insights/2020/09/q2-2020-us-commercial-insurance-prices-rise-by-almost-10-percentage) and concludes that commercial insurance prices rose by nearly 10% in the second quarter (Q2) of 2020. CLIPS is a retrospective look at historical changes in commercial property and casualty insurance prices and claim cost inflation. Here’s how CLIPS summarized its findings for Q2/2020:

U.S. commercial insurance prices again grew significantly in the second quarter of 2020, according to Willis Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS). The survey compared prices charged on policies underwritten during the second quarter of 2020 to those charged for the same coverage during the same quarter in 2019. The aggregate commercial price change reported by carriers grew by almost 5% in the third quarter of 2019, over 6% for the 4th quarter of 2019 and first quarter of 2020, and then spiked upward to just under 10% in the second quarter.  

Or, for that matter, here’s how their research dating to 2003 looks over time (kind of like the commercial insurance roller coaster I wrote about late last year in a post that can be found here:  http://morrisandreynolds.com/the-commercial-insurance-roller-coaster/):

As is common, the changes experienced in the 2020 marketplace varies by line of coverage. Here are a few examples of what I mean:

  1. Excess/Umbrella liability and Directors’ & Officers’ Liability data indicated the largest price increases, with prices for both growing by over 20% for the second consecutive quarter.
  2. Business Auto insurance data indicated price increases near or above double digits for the 11th consecutive quarter. Property prices accelerated significantly in the past four quarters, now indicating increases well into the double digits.
  3. Workers’ Compensation was the rare line of coverage that actually showed price reductions, however, those reductions have begun to decrease in magnitude.

It’s seems clear that the commercial market will remain volatile throughout the rest of 2020 and likely well into 2021. In fact, with uncertainty surrounding our society and economy many experts are suggesting that the market will remain ‘hard’ through 2021. Here’s how Jeff Carlson, Director of Insurance Consulting & Technology at Willis Towers Watson, explained what his firm sees as driving the increases in Q2/20:

“Second quarter data indicated the biggest quarter-to-quarter shift in CLIPS history, dating back to 2003, and underscoring the uncertainty of the day. The combination of social inflation, civil unrest, the economy and uncertainty around COVID-19 has created an increasingly cautious industry.”

And speaking of uncertainty and COVID-19, in a recent call with investors Evan Greenberg, CEO of CHUBB & Son, one of the world’s oldest, and in many people’s view best insurers, was quoted as saying that his firm believes that the pandemic could cost insurers upwards of $ 100 Billion in claims even without business income losses. Whether from various forms of liability litigation, worker’s compensation claims or employment practices losses his prediction, if correct, would make COVID-19 the largest single loss the industry has ever incurred (Hurricane Katrina at $ 42 Billion is currently the largest) and that, of course, has every insurer’s attention while causing them to have extreme fortitude towards increasing their prices, reducing coverage and tightening their underwriting.

The good news, I suppose, is that hard markets do not typically last for long (two or three years on average) and never last forever. The market will shift back to a soft market eventually and prices will fall while coverage terms and underwriting will become more generous. The agents and underwriters here at Morris & Reynolds have seen many market evolutions over our 70 years in business and our renewal process seeks competitive bids from the marketplace of insurers, ensuring that when things improve, and they will, that we will find the very best cost, coverage and insurers for you, along with improvement from the current market conditions.

And for the honor of providing your protection, as always, thank you. Please contact us at any time whether you have questions about your coverage, the marketplace or anything else as we are most happy to help.   

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