Editorial: Chance to reassess as market evolves

It’s been a rough few years for many commercial policyholders, but some signs finally point to better times ahead.

The hardening market that began in many lines in 2018 and took off in the years that followed is still a concern for many buyers, depending on their industry sector and location, but brokers and other industry observers are beginning to report that rate hikes are easing or even that prices are declining.

Workers compensation rates remained stable throughout the hard market, and in specialty sectors, such as public company directors and officers liability, rates have been declining for a couple of years. D&O decreases, though, have been mainly due to the particular circumstances affecting that market — the slowdown in mergers and acquisitions and SPACs. The cyber liability market has also seen decreases for a while as capacity has grown and policyholders have upgraded their cybersecurity. However, you don’t have to search too hard to find buyers that still face sharp cyber rate increases.

Now, though, there is also evidence emerging that property rates are easing. In a report issued last month, Aon PLC said average commercial property premiums fell in the second quarter for the first time in more than six years. The dip was less than 1%, and rates vary significantly depending on location and exposure, but for buyers that have endured years of double- or high-single-digit premium hikes, the overall trend is a relief.

A lower inflation rate should help prolong the trend, but a major catastrophe loss could quickly send rates in the opposite direction.

The main outlier in the trend toward softening rates is the massive U.S. commercial liability market. While excess casualty rates have retreated from their highs, pricing reports indicate they have inched up again this year. Primary general liability rates also continue rising, and commercial auto pricing has been unfavorable for buyers for years.

And while insurers and reinsurers are unlikely ever to say rates need to fall, executives at major industry gatherings have indicated they are determined not to put the brakes on casualty pricing. So-called social inflation, or higher court awards and settlements, is cited as the main factor behind continued rate hikes and insurer reserve strengthening.

It’s clearly too early for insurance buyers to sit back and look forward to another years-long soft market, but at least they might be able to pause for breath and consider how to maximize their premium dollars. Whether that be ensuring coverage is aligned with their changing risks, taking advantage of captives to retain larger portions of their profitable exposures or restructuring their insurance programs to leverage the new market dynamic, the developing property/casualty environment should yield opportunities for those looking for them.