Will the P&C insurance market stabilize in 2024?

This year, homeowners in catastrophe-prone areas can expect rate increases of as much as 25%, Alera Group reports.

Though unfavorable conditions for buyers in the P&C insurance market come to be expected, 2024 has shown signs of positive changes to come. New capacity is coming into the marketplace, and price increases will continue at a moderate rate. Reinsurers also have a fuller understanding of their willingness and commitment toward underwriting business.

Some lines of business, however, are still challenging. Recent losses and unprofitable trends in personal insurance lines such as home and auto have significantly impacted pricing and availability in areas prone to catastrophes and in states where current regulations hinder proper rate adequacy. According to Alera Group’s 2024 Property and Casualty Market Outlook, homeowners in catastrophe-prone areas can expect rate increases of as much as 25%.

To help insurance companies and professionals navigate the P&C market in 2024, Alera Group provided some key findings in its P&C Market Outlook, including current trends within the P&C insurance market and the drivers behind the current state of the industry.

Rate increase, capacity improvement variations

Alera Group’s recent P&C Market Outlook shows that prices will continue to go up in 2024, with most lines of business likely to experience a 1%-10% increase. Commercial auto and Commercial property, however, are going to witness more challenging increases, with a 10%-15% projected price increase, due to loss severity and frequency, higher repair costs and extreme weather events. It’s also worth noting that public and private directors and officers liability (D&O) and workers’ compensation will witness a 1%-10% price decrease as rates cover loss costs and markets are stabilized.

Capacity is expected to improve in some lines, such as D&O, environmental liability, surety bonds and workers’ compensation. Other lines such as commercial auto, commercial property, environmental liability, medical malpractice and personal lines/private risk will witness capacity decrease in 2024. As a result, underwriters will continue to be selective and have more rigorous underwriting standards for commercial auto, medical malpractice and umbrella/excess liability.

Factors influencing the P&C market in 2024

Among the most difficult challenges leaders face are understanding the current market and using that knowledge to prepare for what lies ahead. Insurance professionals need to comprehend and analyze the various factors influencing the current P&C market to better increase their level of control, fully explore options and find solutions that support their continued success. Professionals need to keep a close eye on the following factors…

Inflation

According to data released by the Labor Department in January, the overall cost of living in December increased by 3.4% from the previous year, which is slightly higher than the increase rate of 3.1% in November. The cost of auto insurance also went up by 1.5% in December compared to the previous month, with an overall increase of 20.3% from the previous year.

Skyrocketing inflation has driven up costs on multiple fronts, including building materials, replacement parts, labor, medical expenses, attorney fees and settlement amounts. As a consequence, reinsurance costs rise during periods of high inflation, which leads to insurers introducing higher premiums for policyholders.

Extreme weather events

The National Centers for Environmental Information states that the United States has experienced 376 weather/climate disasters since 1980, and there were 28 confirmed disasters in 2023 alone. The total cost of these 376 events exceeds $2.655 trillion.

These extreme weather events have significantly impacted the insurance industry and consumers. Several property insurers in the U.S., including Allstate, American Family, Erie Insurance Group and Berkshire Hathaway, have informed regulators that they have stopped providing coverage in certain regions, excluded protection from various weather events, and increased monthly premiums and deductibles as a result of the rising costs needed to cover these events effectively. With more expected extreme weather events fueled by climate change, there’s no doubt that property and businesses with historical losses or locations in catastrophe-prone regions should anticipate higher rate increases, capacity decreases and stricter underwriting scrutiny.

Profitability needs

Insurers have been able to strengthen their profitability due to rate increases, better underwriting practices and higher investment returns. Despite this, the P&C industry is still not earning enough to cover its cost of capital. Economists predict that, in most markets, the industry will not be able to generate sufficient returns to cover its cost of capital in 2024 or 2025 due to the rising expense of litigation and economic inflation, which leads to higher claims costs.

Navigating the P&C Market in 2024

Conditions throughout 2024 will likely be similar to 2023, despite the increased stability and easing of rates and availability. As mentioned, the market will remain challenging for several lines of business. Companies and professionals need to take a proactive approach to assess risks and take control of their insurance. Insurance companies value businesses that understand risks and have effective strategies to minimize them. Managing risk well leads to more favorable pricing, terms and conditions.

Given the current market conditions, it’s important for your broker to provide you with fully informed opinions and recommendations. Rather than solely relying on your broker, however, you need to take an active role in marketing your business to underwriters, in telling a convincing story that highlights the strengths of your organization, your plans for the future, the quality of your management team and your efforts to manage risks.

Mark Englert is executive vice president and national property and casualty leader at Alera Group.

Specific Technologies Driving Insurtech Investment in 2024

Understanding the Funding Decline The decrease in funding does not necessarily spell trouble for the insurance sector but instead highlights a strategic shift, the report suggests. “The insurance industry, like many sectors, is focusing on the most promising ventures with substantial insurance potential,” the report explains. “Insurers are directing their investments toward key areas and current trends such as embedded insurance, employee benefits, and cyber risk management. This strategic investment approach signals a forward-looking mindset within the industry.” Three Key Insurtech Trends for 2024 The report identifies three major trends shaping insurtech investments in 2024: Public Insurtech Companies: Financial and Growth Strategies The report also notes that public insurtech companies are prioritizing revenue growth as their main goal. These firms are restructuring their financial strategies to boost cash flow and capitalize on rising revenue streams. Their growth prospects are supported by expanding asset portfolios and strong market demand. “Public insurtech companies are focusing on revenue growth and optimizing their financial frameworks to increase cash flow,” the report states. “The growth potential for these companies is driven by increasing revenue opportunities, broadening asset bases, and a robust market for their services.” In summary, while global insurtech funding saw a decline in 2023, the industry’s focus on GenAI, digital process management, and connected insurance technologies is setting the stage for a dynamic and forward-looking 2024.

Business

Insurer Secures Unanimous Supreme Court Victory in New York Choice of Law Dispute

In the world of sports, a clean sweep, a shutout, or a perfect game is the ultimate achievement. In the legal arena, a unanimous decision from the U.S. Supreme Court is equally rare and significant. In a notable legal triumph, Great Lakes Insurance SE achieved a unanimous 9-0 victory in the Supreme Court on February 21, 2024. This victory follows a protracted legal battle that began in the District Court of Pennsylvania, advanced to the U.S. Court of Appeals for the Third Circuit, and culminated in the Supreme Court’s decisive ruling. Background of the Case: Great Lakes Insurance SE v. Raiders Retreat Realty Company The heart of the dispute was the insurance contract’s clause selecting New York law to govern any future legal conflicts. Although the financial implications of this case were relatively minor compared to the broader marine insurance industry, the insurer’s determination to uphold a crucial maritime legal principle has significant long-term implications for marine insurance. Faced with the insured’s counterclaims—including allegations of breach of fiduciary duty, insurance bad faith, and violations of Pennsylvania’s Unfair Trade Practices Law—the insurer was confronted with serious risks. Such claims could lead to the shifting of attorney’s fees, treble damages, and more, which might normally encourage insurers to settle rather than risk pursuing justice. However, Great Lakes Insurance, supported by The Goldman Maritime Law Group, opted to challenge the Third Circuit’s decision and seek clarity from the Supreme Court. Supreme Court Ruling: A Landmark Decision In a landmark ruling, Justice Brett Kavanaugh affirmed that choice of law provisions in maritime contracts should be upheld by default. This ruling is a major victory for establishing a consistent federal standard in maritime law and avoiding a patchwork of state laws that could complicate marine insurance disputes. The Supreme Court’s decision overturned the Third Circuit’s earlier judgment, which had questioned whether Pennsylvania’s public policy concerns might override the insurance contract’s choice of New York law. By upholding the New York choice of law clause, the Supreme Court eliminated the extra-contractual bad faith claims under Pennsylvania law, thereby ensuring that the dispute could be resolved based on the merits of the insurance claim itself. Significance of the Supreme Court’s Decision This ruling represents a significant advancement in maritime law, affirming that choice of law clauses in maritime contracts are generally enforceable. The decision establishes a clear, uniform legal framework for resolving maritime contract disputes, which will streamline the process and ensure fair adjudication of future insurance claims. Justice Clarence Thomas’s concurring opinion was particularly notable for its criticism of the 1955 Wilburn Boat v. Fireman’s Fund Insurance decision, which had previously influenced maritime insurance law. Thomas argued that Wilburn Boat was incorrectly decided and stressed that a uniform and enforceable set of rules is essential for the development of maritime law. Impact on the Marine Insurance Industry The Supreme Court’s decision sets a “bright-line” rule affirming that choice of law clauses are valid unless there is a strong argument against the selected jurisdiction. By endorsing New York’s insurance laws as a reasonable choice, the ruling supports a more consistent and predictable legal environment for marine insurers. This decision represents a major step forward in maritime law, helping insurers better assess risks, determine premiums, and ensure fair and efficient resolution of maritime insurance disputes.

Will the P&C insurance market stabilize in 2024?