Commercial insurance market update 2024

Explore an interactive regional-risk graphic or listen to a brief podcast as part of this deeper dive into market conditions.

The commercial insurance market began to harden around 2019, after years of gradual shifts that lead to higher premiums and reduced capacity. The overall hard market is expected to remain for the better part of 2024.

Prior to the current conditions, the commercial insurance sector long enjoyed smooth sailing, with stable premiums and expanded coverage that continued for decades, according to the 2024 Commercial Insurance Outlook from Hylant. With the exception of a period after the September 11, 2001 terrorist attack on the World Trade Center — during which the market hardened for a short time — the last sustained hard market occurred in the 1980s.

Those in the commercial insurance space have now been up against a hard market for the last half-decade, which led many insurers to change course; whether that meant fewer renewals, increased premiums or terminating certain coverage products altogether.

But some insurance-industry watchers are optimistic.

“There are opportunities in the current market to continue to grow and prosper,” David Zona, senior vice president of commercial insurance, LexisNexis Risk Solutions, told PropertyCasualty360. “Economic conditions and business formation remain strong, and the agents and brokers who can serve both existing clients and effectively underwrite and assist those that are forming new businesses are poised for success.”

AM Best currently predicts a stable outlook for U.S. commercial lines in the year ahead.

In a recent update, which you can view in its entirety here, Alan Murray, associate director for AM Best, explained: “There are several key considerations underlying AM Best’s maintenance of a stable outlook for the U.S. P&C commercial lines segment. First and foremost, underwriting performance across commercial and specialty lines, both during and after the pandemic, and amidst the substantial economic and capital markets volatility of the past year has been persistently strong. Furthermore, admitted carriers in aggregate remain disciplined about risk selection, terms and conditions, and capacity deployment. As evidenced by the continuation of strong submission flow and growth in the non-admitted, or excess and surplus lines marketplace.”

“And importantly, from the investment perspective,” Murray continued, “strictly higher fixed income reinvestment rates have begun to significantly bolster operating profitability in virtually all lines, especially long-tailed casualty lines of business.”

When it comes to pricing and reserving, Murray explained that momentum remains positive, with the exception of workers’ compensation and certain management liability lines.

What are commercial clients’ concerns?

Many of the issues influencing the commercial insurance sector are also top concerns among the global business community at large.

According to Allianz’s 2024 Risk Barometer, cyber incidents are the top business risk concern, followed by business interruption, natural catastrophes, macroeconomic developments, fire and explosion, climate change, political risks and violence, market developments and the shortage of a skilled workforce.

The infographic below breaks down the top concerns for business owners worldwide, according to Allianz.

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Commercial P&C Insurance

Commercial Office Space Set for a Strong Comeback

The sustained increase in demand for office space across the nation since late 2022 suggests that the market has moved past its lowest point, according to insights from the real estate technology platform, VTS. Demand for office space began to rise in late 2022 and continued into early 2023. Since then, the office market has experienced a period of stability and growth, supported by favorable economic factors, indicating a market rebound. This conclusion is drawn from the VTS Office Demand Index (VODI), which tracks unique new tenant tour requests for office properties in key U.S. markets. The VODI serves as an early indicator of future office leasing activity. According to the index, demand for office space has grown consistently over the past 12 months, closing the second quarter with a 17% year-over-year increase and a 34% rise from the VODI’s lowest point in December 2022. A significant shift in office-based employment patterns further supports the belief that demand for office space has stabilized. After reaching its peak in August 2022, office-based employment declined by 3.9% in early 2024. However, this trend has since stabilized, and employment growth has remained steady. Additionally, a recent decrease in work-from-home rates has fueled the renewed demand for office space. “They say you can only recognize a market bottom after it has passed, and the office space market is no exception. Following what we now see as the bottom, the national demand has gradually increased, though it remains susceptible to economic challenges,” said Nick Romito, CEO of VTS. “However, the growth observed in VODI over the past 18 months, coupled with positive trends in the office-using workforce, suggests that the market has reset, and the worst is behind us.” It’s important to note that this national trend does not impact all local markets equally. Cities like Los Angeles and New York City have seen healthy growth in office space demand, while markets such as San Francisco and Washington, D.C., have experienced prolonged stagnation. In Los Angeles, office space demand surged in the second quarter, briefly surpassing pre-COVID levels, driven by an increase in the average size of office spaces sought by tenants. New York City followed a similar overall pattern, though with some softness in the second quarter. Conversely, San Francisco’s demand for office space remains unpredictable, largely due to its tech-focused workforce, which continues to favor remote work more than other industries. “Markets heavily dependent on the tech sector, like San Francisco and Seattle, are on a markedly different post-COVID recovery path compared to more diversified markets like Los Angeles and New York City. It may take some time before we see office demand in San Francisco and Seattle return to pre-COVID levels,” added Ryan Masiello, Chief Strategy Officer at VTS.

Cyber Liability

Global IT Outage Puts Business Interruption Insurance in the Spotlight

In July, a global IT outage had a significant impact on business interruption insurance policies, overshadowing the effects on cyber insurance coverages. “This incident wasn’t a result of a malicious attack, which is why typical cyber insurance policies may not have been activated,” explained Peter McMurtrie, a partner in West Monroe’s insurance sector, in an interview with PropertyCasualty360.com. “Where coverage was applicable, factors like deductible amounts, waiting periods, and coverage limits played a critical role in determining the extent of exposure,” McMurtrie noted. “Standard policies for small businesses were less likely to offer coverage, while more complex policies for mid-sized companies and Fortune 500 corporations may have included broader triggers for non-malicious outages caused by third-party software issues.” The outage was triggered by a software update on July 19, 2024, by cybersecurity firm CrowdStrike, which affected organizations worldwide using Microsoft Windows. This interruption had far-reaching consequences, including disrupting hospital systems, media outlets, financial institutions, delaying thousands of flights, and halting daily business operations. McMurtrie emphasized that while the initial impact of the outage was similar for both large and small businesses, the ability to recover operations and whether insurance covered the loss of business income varied. “Larger companies are more likely to have advanced disaster recovery plans that ensure service redundancy following unexpected outages,” he added. “Their insurance programs also tend to cover a wider range of incidents.” According to Microsoft, the CrowdStrike update error affected over 8.5 million Windows devices globally. The incident highlighted the interconnected nature of our global ecosystem, including cloud providers, software platforms, security services, and their clients. “It’s a stark reminder of the importance of prioritizing safe deployment and disaster recovery across the tech industry,” the company said in a blog post. McMurtrie pointed out that the outage’s widespread impact was largely due to its effect on organizations that are critical to societal infrastructure—sectors like agriculture, airlines, banking, energy, government, healthcare, manufacturing, and retail. “Insurance companies base their risk appetite on their ability to understand and price risks appropriately. This becomes increasingly challenging with emerging threats,” he said. “However, I anticipate that insurers will respond by clarifying policy language, refining risk selection criteria, and possibly developing new products specifically designed for this evolving exposure.”

Commercial insurance market update 2024