Commercial Insurance Premiums Increased 8.1 Percent in Third Quarter

Commercial insurance premiums increased by an average of 8.1 percent during the third quarter of 2023, down from the 8.9 percent increase in the second quarter but the 24th consecutive quarter of premium increases, according to the Council of Insurance Agents & Brokers (CIAB).

The CIAB's Commercial Property/Casualty Market Index Q3/2023 found that most commercial insurance lines saw increases at about the same level as during the first half of this year, except for workers compensation and directors and officers (D&O).

D&O premiums actually saw a 0.3 percent decrease during the third quarter, the CIAB found, the first decrease in D&O premiums since the first quarter of 2017. The report notes that while survey respondents didn't specify a cause for the D&O premium drop, outside research suggests that the premium decline was part of a trend of insurers pulling back on D&O premium increases that's been in place since the line's premiums peaked in 2020 and 2021.

The CIAB third-quarter survey also found evidence of continued moderation in the cyber-insurance line of business. Cyber-insurance premiums increased only 1.6 percent in the third quarter, according to the CIAB report.

Commercial property premiums continue to increase during the third quarter, rising an average of 17.1 percent, the highest premium increase among all lines for the fourth consecutive quarter, the CIAB says. "Issues with reinsurance pricing and capacity continued to plague the line, as well as increased claim frequency and severity due to climate change, according to respondents," the CIAB report says.

The CIAB report suggests that respondents' agreement that high reinsurance costs and the lack of reinsurance capacity were primary factors in continued property premium increases was consistent with their attitudes in previous surveys this year. The CIAB says 60 percent of respondents mentioned one or both factors when asked how insurers justified premium increases and reductions in capacity for the commercial property line.

Beyond reinsurance, 58 percent of respondents cited losses from natural catastrophes as the other major contributor to ongoing issues in the commercial property market, the CIAB says.

Some respondents also cited inflation's impact on the commercial property market, noting that inflation affects the ability to restore property after a loss with increases in the cost of parts and materials, the report says.

The CIAB says that most survey respondents agreed that property was a major factor in the third quarter's continued premium increases across all commercial insurance account sizes. Overall, survey responses tended to highlight insurer selectiveness, requests for information, and a more limited underwriting capacity, the CIAB says.

The CIAB report says that multiple respondents to the third-quarter survey noted that insurers had pulled back from underwriting small accounts or left the space altogether. The report quotes one respondent reporting that insurers were "non-renewing (small accounts) more than ever," due to "updated appetite and changes in underwriting guidelines.”

Other responses suggested insurers' shifts in appetite and underwriting guidelines were largely centered on commercial property, the CIAB says, with some respondents citing automatic increases in property values due to inflation or insurers now using fire maps in their underwriting, making it more challenging to place business.

Regarding insurance buyer sentiment, the CIAB's third-quarter survey found respondents indicating that buyers have grown weary of high premiums, increased scrutiny, and coverage limitations, which have had a negative impact on buyers' perception of the insurance industry.

"On average, 70 percent of respondents described hearing some level of rate fatigue from their clients; nearly half said their clients felt burdened by [insurer] requests for information," the CIAB says.

"Concerningly, more than 40 percent said their clients felt some level of mistrust towards the industry," the report says. "One respondent attributed this sentiment to the fact that clients still saw increases in their premium even if they had no losses, leading to frustration with the system."

Another third-quarter survey respondent said that with insurers pulling back from property risks or even leaving some markets altogether, their clients felt the insurance industry was "running away from what is considered traditional risk instead of providing solutions."

The CIAB's third-quarter survey found that brokers' top priority (beyond the perennial top two of driving organic growth and recruiting and developing talent) was becoming more data driven. Some 40 percent of respondents placed an increased focus on data among their top three priorities.

Respondents indicated a need to clean up their current stores of data to allow them to get better data in front of clients faster, the CIAB says, allowing them to be more responsive and make more consistent decisions more quickly.

Among the strategies survey respondents are looking toward to improve their focus on data are using third-party vendors to evaluate and sort their data or implementing proprietary agency management systems, the report says. Some respondents indicated that they're looking not just to improve their ability to access and leverage their own internal data but also are seeking sources of external data they could use in addition to their existing data, according to the CIAB.