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Woodruff Sawyer sees P&C rate increases flattening in 2022

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Property and casualty rate increases will flatten in 2022, but auto and workers’ comp rates are expected to creep higher, Woodruff Sawyer predicted.

The brokerage said in its “P&C Looking Ahead Guide to 2022” forecast that new P&C market entrants have increased competition, which should drive rates lower. “High-quality risks may even see some rate decreases by late 2022,” the report said.

P&C rate increases are expected to flatten and, in some cases, may decline because of increased competition. “Almost every month in 2021 has brought news of a new market entrant – it takes time for new markets to get up and running, but most should be fully operational and quoting new business in 2022,” the report said.

Yet, the report’s “optimistic view” does not cover all corners of the commercial market, as concerns surrounding social inflation, cybersecurity, climate issues and the Covid-19 pandemic continue to percolate, Woodruff Sawyer said.

The broker’s forecast for flattening does apply to the D&O market, whereas cyber premiums are expected to spike in 2022, driven by massive ransomware losses.

Further, positive momentum in property is visible in increased competition among renewals, and additional capacity continues to enter the market, the report said. That said, high losses from winter storms, hurricanes and wildfires in the US, along with flooding in Europe and Asia, are cutting into insurer profits.

“Climate change is having a major impact on carriers’ ability to underwrite and offer insurance,” the broker wrote, noting that crowded US coastal areas are particularly at risk and historical losses are not adequate to predict the future.

Indeed, even as the broker predicted commercial property rate increases would stabilize at about 8%, the report noted that questions raised by climate change make forecasts difficult.

In workers’ compensation, the pandemic remains a question mark, but early fears that huge numbers of workers would contract Covid-19 on the job have dissipated, making rate increases less likely.

“What’s clear now is that workers’ compensation remains the most competitive and best performing major property and casualty insurance line,” the report said. “Insurers’ ability to drive rate increases is minimal.”

On the other end of the spectrum, “auto liability coverage remains a hugely risky proposition for US insurers,” the broker wrote.

Underwriting results in auto seem to be improving after several years of rate increases, but social inflation, as well as spiking frequency and severity from the increase in miles driven, remain problematic.

“With auto repair and medical treatment costs still on the rise, insurers are concerned that auto losses will surge once driving activity rebounds to pre-pandemic levels,” the report said.

While the first half of 2021 saw an average 9% rate increase for auto, Woodruff Sawyer is expecting slower gains – 6% to 10% in 2022 – as insurers in this sector creep toward profitability.

Social inflation also continues to drive up rates for primary general and products liability.

While rates on average rose 6% in the first half of 2021, businesses in high-hazard industries, from kids' product manufacturers to habitational real estate owners and sharing economy firms, along with companies with material wildfire exposure like utilities, should expect larger hikes.

In excess casualty, social inflation is also expected to drive up the frequency of severe liability losses, pegged at $15mn or greater. Increasing frequency and severity has driven huge losses, particularly in the umbrella and lower layers of an excess casualty tower, the report said.

“Insurers have reacted by demanding significant umbrella rate increases for essentially all risks with meaningful products, auto or premises exposures, while simultaneously requiring higher underlying limits in order to bump up umbrella attachments for certain accounts,” the report said.

With capacity in this market slashed in recent years, prices for reduced layers have gone higher.

Competition has increased along with rates, however, with at least $100mn of new underwriting capacity entering the US casualty market. That is driving competition for layers of excess towers above $25mn.

Woodruff Sawyer predicted that 2022 will “continue to see the adoption of alternative means of risk transfer,” like parametric products.

“We will also see the increased involvement of MGAs and continued development of AI, improving claims payment abilities, automatic capacity and policy reviews.”

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