There are several factors influencing why the insurance industry is in a hard market. Insurance companies are facing the fallout from increasingly severe and frequent catastrophic weather events, with Hurricane Ian being the most recent devastating multibillion-dollar event to hit Florida. Inflationary issues arising from the macroeconomic environment are impacting insurer profitability with lower investment returns. Social inflation, with high litigation costs, jury awards, and settlements combined with societal attitudinal shifts, continues to impact insurer payouts.
Matt Grossberg, founder and CEO of Integrated Specialty Coverages (ISC), sees the hard market continuing as we head into 2023, particularly in property insurance and specific geographic areas. In certain product lines and niches, Matt sees a deceleration of rate increases and a softening market where new entrants are looking to establish a footprint.
“On the property side, catastrophic weather events continue to challenge underwriting models, capacity, and pricing. Capacity will continue to decrease, and we will continue to see an increase in pricing with coverage more difficult in hazard-prone states.” Matt cites the already challenged insurance market in Florida, which has seen carriers and reinsurers exit the state in the last year, and California, where homeowners insurance is through the roof in wildfire areas, as examples of the hard market.
“The excess and surplus lines (E&S) market will become even more prominent in Florida as standard markets find it too difficult to be profitable in the state,” he says.
On the liability side, Matt sees a deceleration in premium rate. “While in 2022, we saw a rate increase of 8% over 2021, next year, we will most likely experience a more manageable increase of 3% to 5%, as most carriers have achieved rate adequacy. Carriers are not as aggressive and are accepting risks with which they are more comfortable.”
Matt also provided insights on the status of a few niche markets in which ISC specializes, including construction and transportation.
“With more entrants into the construction market, we are beginning to see a deceleration in rate increases. Insurtechs and private-equity acquired MGAs are focusing on contractors, bringing in more competition and price pressure, although there are still capacity issues.”
Matt cites an influx of competition in the large fleet segment of the transportation market, which will start to negatively impact carriers’ loss results. This comes on the heels of the marketplace that’s just getting to price adequacy. “Although pricing has decreased for larger fleets, it remains strong for new ventures and individual owners/operators.”
The issue in the transportation market, as Matt explains, has been with larger fleets that were poorly priced and reached record highs over the last two years to achieve rate adequacy. “Rates were well over $10,500 per power unit, up from $5,000 a unit before 2019. In some cases, rates hit $16,000 to $17,000 per power unit. These rates are now coming down as more MGAs enter the space. The new competition is forcing companies to reduce rate in order to achieve greater market share and get premium dollars in the door.”
Matt warns that, if prices continue to drop significantly, new entrants will leave the market due to a lack of underwriting profitability as the litigious environment continues and the high cost of claims hits their books not only in the first year but for years thereafter. “Hopefully, this is a blip in the market and we will return to rate adequacy, but until this occurs, we foresee a softening market.
“At ISC, we rate each risk as a stand-alone entity to ensure the premium is adequate and not superficially supported by other risks. Our underwriting discipline remains consistent, and we keep rate where it needs to be, as we plan to be a competitor in this niche well into the future.”
In terms of some of the other niche markets ISC serves, Matt doesn’t see much of a change in restaurants, bars, taverns, and nightclubs (RBTN) or the entertainment market. “The excess market is starting to level off and remain stable.”
Agents should continue to work with partners with whom they are comfortable and who have a proven track record of stability and longevity. “Work with MGAs and carriers that have been around for a long time in the markets they serve. Stability is critical for insureds in challenging insurance and economic markets. Stay close to those with whom you’ve successfully worked versus finding new players that may hurt your insureds and relationships if they cannot remain in the market.”