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Willis expects North American pricing to ‘gradually soften’ in 2022

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The hardening North American commercial market is expected to gradually moderate in 2022, bringing a deceleration in premium rate increases into 2022, according to the latest report by Willis Towers Watson.

In its “2022 Insurance Marketplace Realities” report, Willis said that the insurance marketplace has taken significant steps towards “correcting itself” after several annual cycles with “steep, often relentless increases”.

“A rise in capacity has lifted supply, and the laws of supply and demand have come to the aid of the insurance buyer,” the report stated.

Cyber and liability and fiduciary liability are two exceptions to this general trend, the report noted, as rates within these lines have been steeply climbing.

“This does not contradict the rule, however,” Willis said. “Losses are rising, and capacity is tightening. Supply down, prices up.”

The report pointed to the forces that led to the hard market, including climate-related heightened catastrophe losses, social inflation, and rising exposures in areas such as cyber and liability.

Rates in the P&C market continued to rise in Q3 2021, with outsized increases for cyber insurance driving up the average change, according to data revealed in third-quarter conference calls.

In cyber, rate increases jumped from +10% to +30% a year ago to +25% to +50% in the spring, and now for 2022, +50% to +150%, the Willis report stated.

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“For the most part, we are moving toward stability as we watch the workings of a simple economic law – supply and demand,” said Jon Drummond, senior editor for the report and head of North America broking at Willis.

“That does not mean, however, that this is a simple marketplace. The two-tiered marketplace we highlighted in our last issue remains a reality in many lines of business; conditions are better for better risks and tougher – sometimes quite a bit tougher – for less attractive risks,” he added.

While Willis predicted market moderation as fresh capacity enters the market, the report concluded that the cost of insurance in the near term is still going up.

“Most buyers will be paying more, but marketplace results should be less painful. The two-tiered market, which has always been a reality to some degree, is still in effect in many places, but the downside of being in the higher-hazard tier is not as bad,” the report said.

Drummond said that “for better or worse, our industry will continue to move with the laws of supply and demand.”

He went on to say that if supply continues to come back as it has in the second and third quarters of 2021, “we could see rate decreases commence as early as the second quarter of 2022”.

Drummond noted, however, that this will not occur across all lines, and that distressed lines of business, most notably cyber, will remain challenged “well into 2022”.

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