Commercial Insurance Price Increases Continued To Moderate in Q4

Global commercial insurance prices increased 4 percent during the fourth quarter of 2022, as the pace of quarterly increases continued to slow, according to the latest Global Insurance Market Index from Marsh.

Prices had previously increased 6 percent during the third quarter and 9 percent in the second quarter, the Marsh index found.

While the final quarter of 2022 was the 21st consecutive quarter of commercial insurance price increases, it continued a trend of moderating increases that began in the first quarter of 2021, Marsh says. The current run of increases is the longest since Marsh began the index in 2012.

Price increases moderated in most regions during the fourth quarter, Marsh says.

Marsh notes that an overall decrease in certain financial and professional lines—notably directors and officers insurance—contributed to the price moderation across most regions. Moderation in cyber pricing was an additional factor.

In the United States, composite commercial insurance pricing increased by 3 percent in the fourth quarter, down from a 5 percent increase in the third quarter of 2022, the February 2, 2023, report says. In the United Kingdom, rates increased by 4 percent during the year's final 3 months, down from a 7 percent increase in the third quarter.

Elsewhere, rates increased in the Pacific region by 5 percent, by 2 percent in Asia, and by 6 percent in Continental Europe, all the same as the increases in the prior quarter, Marsh says.

In Latin America and the Caribbean, according to the report, commercial insurance prices increased 7 percent in the fourth quarter, up from the 5 percent increase during the third quarter.

Marsh says insurers remained focused on the impact of inflation on asset values and claims at renewals in most regions during the fourth quarter.

Global property insurance pricing increased 7 percent on average during the fourth quarter, up from 6 percent the prior quarter, the Marsh report says.

In the United States, property insurance pricing increased by 11 percent in the fourth quarter, up from an 8 percent increase in the fourth quarter. Marsh says it was the 21st consecutive quarter in which United States property pricing increased.

The US property insurance pricing increases were largely driven by challenges in the reinsurance market leading up to the January 1 treaty renewals, the Marsh report says.

The fourth quarter also saw the US property market remaining bifurcated, Marsh found, with "best-in-class" risks with limited windstorm exposure and stable capacity from incumbent insurers typically experiencing better results. Insurance buyers experiencing higher price increases were typically those affected by losses or located in high hazard catastrophe zones such as the Gulf of Mexico or the Atlantic Coast, according to Marsh.

Given global inflation trends, property insurers continued to focus on valuations during the fourth quarter, Marsh says. Meanwhile, insurers maintained discipline over terms and conditions, including deductibles, nonphysical damage, cyber, communicable disease exclusions, and time element extensions, the report says.

Excluding workers compensation, US casualty pricing increased 3 percent on average during the fourth quarter, according to the Marsh index, down from a 4 percent increase in the third quarter. With workers compensation included, US casualty prices increased only 1 percent during the final 3 months of 2022, Marsh says. "Casualty pricing continued to be driven by workers' compensation, which has helped moderate the average rate increases," the report says.

The Marsh report says casualty insurers are carefully monitoring the impact of inflation, the reopening of courts systems, the increased number of vehicles on the road after the COVID-19 pandemic, and recent hurricanes.

During the quarter, incumbent casualty insurers proactively offered US casualty insurance buyers improved terms as a way of keeping existing clients from marketing their program, Marsh says.

US excess liability prices increased 6 percent in the fourth quarter compared to 7 percent a quarter earlier, according to the Marsh report. "Insurers continued to monitor the severity of claims given what they perceive as recent large losses with questionable underlying liability," the report says.

US financial and professional lines pricing decreased 10 percent in the fourth quarter, compared to a 6 percent decrease in the third quarter, Marsh says.

US directors and officers (D&O) liability insurance for publicly traded companies saw pricing decrease 14 percent in the fourth quarter, compared to a 9 percent decline in the third quarter, according to the report.

Competition from both new D&O insurers and legacy markets was strong during the fourth quarter as they sought solid finishes to the year, Marsh says.

According to the report, the fourth quarter was the second consecutive quarter to see overall pricing in financial and professional lines fall, as rate reductions in the United States, the United Kingdom, and Australia contributed to price declines of 6 percent, down from a 1 percent decrease during the third quarter.

Cyber insurance pricing increased 28 percent globally during the fourth quarter, down from a 53 percent increase in the third quarter, Marsh says. In the United States, a 28 percent increase in cyber-insurance prices during the fourth quarter was down from a 48 percent increase in the third quarter. Marsh says new entrants to the cyber-insurance market increased capacity.

In some cases, increased competition and favorable cyber-security controls resulted in flat renewals or price reductions, Marsh says. Cyber-claim frequency declined during the fourth quarter, while severity remained high.