Insurance Buyers Face Average Q3 Rate Increases of 8.1%
According to the latest data from the Council of Insurance Agents & Brokers (CIAB), commercial property and casualty insurance premiums have been steadily increasing for the past 24 quarters. With prices rising by an average of 8.1% across all account sizes, clients are experiencing rate fatigue and growing disillusioned with their insurance partners.
Commercial property rates continued to soar at an average of 17.1%, the highest premium increase among all lines for the fourth consecutive quarter While this figure is slightly down from the previous quarter’s 18.3% increase, it still leads the market by a significant margin. D&O premiums decreased for the first time since Q1 2017 at an average of -0.3%. Commercial auto also experienced a rise at 8.8% (down from Q2’s 10.4%), followed by umbrella liability at a 7.4% boost.
Commercial Insurance Property Market Developments
Marking a year of increases of over 15%, commercial property premiums skyrocketed by an average of 17.1% this quarter. These continued surges can be attributed to a combination of exorbitant reinsurance expenses and limited reinsurance capacity. Notably, devastating natural disasters have wreaked havoc on the commercial property sector, exacerbating challenges.
Unprecedented weather patterns have affected all regions of the country, caused catastrophic losses and sent shockwaves throughout the industry. Additionally, inflation has further impacted policyholders’ ability to recover from losses. The rising costs of materials have created additional hurdles for businesses seeking to bounce back from natural disasters.
Notable Directors & Officers (D&O) Changes
The premiums for directors & officers (D&O) insurance experienced a slight decrease (-0.3%) this quarter, marketing the first decline since Q1 2017. This decrease follows a trend of gradually tempered premium increases that began after peaking in Q2 2020. Notably, signs commonly associated with softened market conditions were not overly evident. The demand for D&O coverage remained stable, with 86% of respondents reporting no change compared to Q2 2023.
There are indications of increased underwriting capacity, often associated with lower prices. The response to this growth was insignificant, with only 16% of respondents reporting an expansion in underwriting capacity, while 78% stated it remained unchanged. A Woodruff Sawyer report offers several explanations for the decrease in D&O premiums including a significant rise in initial public offering (IPO) filings, reaching 460 in 2020, almost double the average filings between 2017 and 2019. In 2021, the number increased to 1,103 filings, resulting in an unprecedented demand for D&O and subsequently driving prices. The report also notes IPO filings significantly declined in 202, with 174 filings and 74 in the first half of 2023. This decrease in demand for D&O insurance has resulted in reduced premiums as carriers compete for limited business opportunities.
Additionally, securities class action lawsuits peaked in 2019 at 268 and have been decreasing since. This is partly due to a Delaware Supreme Court ruling in the case of Salzberg, et al. v. Sciabacucchi. Before this ruling, plaintiffs could file securities actions in federal or state court or both. However, the recent decision confirmed that companies can include company charter document provisions requiring securities actions to be brought solely in federal court, which avoids costly duplicative lawsuits. As the size of settlements and the cost of litigation can impact the directors and officers (D&O) insurance market, particularly concerning social inflation trends, this may be a contributing factor to the decrease in D&O premiums observed this quarter.
We’re Here to Help You Understand the Current Insurance Market
Brokers have found that clients are still worried about rising premiums and limited coverage when it comes to insurance. To tackle these challenges in a tough market, you should start planning for policy renewals early. This will allow your business to better navigate the obstacles that lie ahead. If you have questions about these predictions or risk insurance solutions to help offset these increases, connect with a member of our team