Market conditions did not change significantly from the previous quarter in the fourth quarter of 2021, according to Woodruff Sawyer. We continue to see stabilization in many sectors of the commercial lines market, and cyber remains a concern for insurers as ransomware losses continue unabated. As premiums continue to rise, cyber buyers are feeling the pain.
We are cautiously optimistic that premiums in many parts of insurance programs will stabilize in 2022. However, we are keeping an eye on a few factors that may be influencing this cautious optimism. The ongoing impact of unseasonal weather disasters, such as the December 10th tornado outbreak that affected multiple states and the December 30th Colorado wildfire, is one source of concern. Inflation is another significant issue. More expensive building materials and auto parts, for example, will have an effect on property and auto rates.
Get our Commercial Lines Insurance Market Update for Q4 2021 for Q4 2021 for more information.
Signs that the D&O market is about to get a break
A Q4 bright spot is the Directors & Officers (D&O) liability market. Except for IPOs and SPACs, we reported in Q3 that premium increases were slowing. This trend continued in Q4, and there are signs of premium reductions for stable companies with strong financials and a track record of loss.
This trend may be influenced by the fact that securities class action filings against public companies fell for the second year in a row in Q4. This is significant because it reverses a 10-year trend of increasing filings. IPO and SPAC premiums, on the other hand, are likely to remain high due to ongoing litigation related to these transactions.
Economic uncertainty caused by COVID-19 is leading to an increase in D&O litigation as a result of factors such as misleading statements about the outbreak, deceptive claims about potential vaccines and treatments, and privacy concerns. New and increased exposures, such as cyber (data breach), the #MeToo movement, privacy oversight, and climate change, are also driving litigation.
Material prices, labor shortages, and climate change all have an impact on the Property sector.
Despite exceeding 2020 loss costs, some property carriers achieved profitability in 2021. We will continue to monitor labor and material costs, building and equipment trend factors, as well as the effects of potential downtime and contingencies that distinguish insureds.
Property carriers gave preferential treatment to insureds who demonstrated risk improvement, provided adequate valuations, formalized and implemented business continuity plans, and demonstrated knowledge of operations and potential post-loss impacts in Q4.
The impact of climate change is an ongoing challenge for the property market. According to the National Oceanic and Atmospheric Administration, 20 extreme weather disasters will cost more than $1 billion each in 2021. While some carriers anticipate overall profitability for the year, the general consensus is that more work is needed to address the frequency and severity of natural disasters and their perils.
Cargo and stock throughput rates have stabilized despite supply chain issues.
Rate stability and pre-existing coverage remediation point to a bright future for the Cargo and Stock Throughput market in 2022. According to the fourth-quarter results, new capacity is encouraging conservative competition, and markets are looking to capitalize on growth opportunities.
London insurers are actively considering new line-slip and binder opportunities, despite significant retrenchment over the last two years. However, ongoing global supply chain issues, such as makeshift storage, excess stock demand, poorly stacked vessels, more frequent fire losses, port delays, and accumulation issues, have wreaked havoc in the United States.
Workers’ Compensation continues to be the most competitive line in the Casualty market.
The casualty market is still dealing with rate pressure as a result of insurer concerns about rising claim severity. To keep up with loss trends, primary casualty insurers sought rate increases for the 16th consecutive quarter.
Workers’ compensation remains competitive and profitable, with average rates remaining flat over the last year and decreasing in the previous quarter. In the fourth quarter, general liability and automobile liability rates stabilized, with increases consistent with previous quarters. Over the previous quarter, the umbrella/excess market showed signs of improvement.
The increasing frequency of nuclear verdicts remains a major source of concern for liability insurers. Social inflation and litigation financing are the primary drivers of large casualty losses. Furthermore, demand for Lead Umbrella is outstripping supply, putting a strain on capacity.
A dark cloud continues to loom over the Cyber market.
If 2021 was the year of rate hikes, then 2022 will be the year of coverage restrictions—and more rate hikes in the Cyber Market.
According to Coveware, the average ransom payment increased by 130 percent in Q4 compared to Q3. According to Bloomberg Law, federal BIPA cases more than doubled between 2019 and 2020. These sharp increases are prompting carriers to reduce coverage available for non-breach privacy claims.
In Q4, buyers faced the double whammy of premium increases and coverage restrictions, which is expected to continue through 2022. In their 2022 Cyber Liability Looking Ahead Guide, our Cyber Team recently published an in-depth review of trends.
More information on these Q4 2021 developments and trends can be found in our most recent Commercial Lines Insurance Market Update.