Dec 15, 2022

Have you looked at your books for 2023?

It’s the time for year-end wrap ups, 2022 Best of lists and 2023 Trends lists. It’s the time when we begin to look back on the year that was and look ahead to what can be expected in the new year.  Just like music, sports and movies, insurance has highlights and expectations. So… to be like the cool kids, we put together our outlook for Commercial P&C and Excess and Surplus (E&S) Insurance in 2023. 

It’s no secret that the insurance industry rotates between soft and hard markets. As we enter 2023, it looks like we’re headed for a hard market. With mounting recessionary fears amid surging inflation and rising interest rates, geopolitical uncertainty and a growing frequency of extreme weather events, storm clouds are gathering over the global outlook. The past few years created a perfect storm leading to this hard insurance market.

Rates continue to increase in the foreseeable future

According to a recent article in Construction Executive, it seems that as rates look to increase, insureds should conservatively budget for a 10% rate increase. Some lines will likely see larger increases than others. For example, auto insurance rates could increase by 12% in 2023. Property insurance, in general, has been flat to plus 10%. Certain properties, however, are seeing significant increases. General Liability is experiencing modest increases. In general, expect flat to plus 5% on rate.

Excess (Umbrella) coverage generally follows the underlying liability and auto pricing. Compensation rates have been coming down for years. The combined ratio for this line of business has been steadily increasing and is at 112%. Executive Risk and Professional Liability markets remain competitive and rates are kept soft at 5% to 10% average rate increases.1

As a result of rate increases, many quotes are being shopped around. For a quote to be selected:

  • Carriers must establish a comprehensive underwriting process that ensures a standard quality irrespective of the underwriter.
  • The process must guarantee full information availability on the risk and loss history that the risk is within the appetite.
  •  It must ensure the quote is handled by the underwriter with appropriate expertise, referred as required, facilitates collaboration with brokers and enables quick bind and issue. 

Leveraging technology and data to achieve these criteria is critical.

Limited Coverages

As insurers grapple with increasing losses, they may not be willing to write policies with high limits. They may also add new exclusions. When policyholders get ready to renew their coverage or purchase new coverage, they should carefully look at the policy’s limits and exclusions. Additional coverage may be needed to avoid coverage gaps.

For MGAs and E&S Carriers, this provides lots of opportunities.

Surplus Markets

The E&S market provides an alternative to the limited coverage, and it’s been growing in recent years. According to AM Best, in 2021, U.S. surplus lines experienced the largest year-over-year premium growth since 2003 and reached a record $82.6 billion. This growth appears to continue in 2022, and the surplus lines market now represents more than 10% of the total Property and Casualty direct written premiums.

The Insurer recently reported that surplus lines premiums recorded by the US stamping offices grew by a record 32.4 % to $31.4 billion in the six months through June 30. And despite some reports of a reduced volume of submissions coming into the E&S market, the evidence in the stamping office data was of an increased number of transactions, up 9.4% to almost 2.8 million in that same period.2

Rise and Rise of MGAs

According to that same article in The Insurer, Direct Premium Written (DPW) by MGAs in US statutory filings grew 15.5% last year to $56 billion, with the total size of the market estimated to be $70 billion, including $7.1 billion of premium sourced by US MGAs for Lloyd’s.  MGAs accounted for 38 percent of E&S premiums in 2020. The growth in the E&S market in recent years has been a strong driver in the expansion of direct DPW by MGAs.

Transparent Books

Given the market conditions, underwriting teams need a ready reckoner of their books by Line of Business (LOB), Region, Coverage, Team, Underwriter and Account at every premium dollar. This is great internal data to ensure profitable underwriting. 

2023 looks to be a year of both challenges and opportunities for Commercial insurance. IntellectAI looks forward to great partnerships across the industry to go beyond these challenges  in the New Year to bring the best solutions and relationships with our client partners.

  1. “Commercial Insurance Outlook: What to Expect in 2023.” Construction Executive | Welcome, https://www.constructionexec.com/article/commercial-insurance-outlook-what-to-expect-in-2023. 
  2. “Insurer in Full: Sunny Outlook despite Gathering Storm Clouds.” Slipcase, https://www.slipcase.com/view/insurer-in-full-sunny-outlook-despite-gathering-storm-clouds/8. 

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