Market Forecast Sees Current Conditions Likely To Persist in 2024

The hard property market conditions experienced in 2023 seem likely to persist in 2024, while the casualty market might see insurers looking to drive rate increases in the year ahead, a new report suggests.

The Insurance Marketplace Realities 2024 report from Willis Towers Watson (WTW) suggests the outlook might be better in financial lines, however.

"On a brighter note, the financial lines, including cyber, appear to be on steady ground in a soft market," the November 10, 2023, WTW report says. "It would likely take a couple of considerable claims or a troubled financial market for the financial lines to begin to slip significantly toward a hard market."

The WTW report likens watching developments in property-casualty insurance lines in recent years to "watching a landslide, where a slight change in an unstable environment can cause the higher ground to shift, starting a chain reaction of compounding issues that destabilize the ground below."

In 2022, inflation was front and center among those destabilizing figures, according to the WTW report, with increasing prices on materials and supply chain disruptions having a compounding effect on insurance claims costs for first-party risks. Meanwhile, in casualty lines, social inflation continued to result in disproportionately high claims, the report says.

On the property side, the reinsurance market was a major factor in primary market conditions, according to the WTW report.

"As reinsurers lost their footing, particularly after Hurricane Ian, they made wholesale cuts in property reinsurance capacity, resulting in both substantial price increases and larger retentions for many retail insurers," the report says. "Retail insurers began overhauling their property insurance portfolios, reducing capacity and driving a hard property market for consumers that, in many ways, surpassed hard conditions experienced in 2020."

Those hard market conditions prevailed in the property insurance market throughout 2023, WTW said, noting that the combination of inflation, the Maui wildfires, and convective storms will likely leave the insurance industry ending 2023 with more than $100 billion of insured property losses, despite what might be a mild Atlantic hurricane season.

"A possible silver lining could be that the restructuring of reinsurance treaty retentions throughout the year will leave the capital base poised to generate meaningful returns," the WTW report says. "If that occurs, additional capital could come into the property insurance marketplace and help mitigate the hard property market in 2024." WTW cautioned, however, that the possibility of such an outcome isn't meant to suggest a return to solid footing for the property market.

The reinsurance market could harden conditions in the casualty market as well, WTW suggests. The report notes that heading into 2024, casualty reinsurers are showing concerns about social inflation and rate adequacy. "If investment and reinsurance capacity falls out of the liability lines, the current 'moderate' rate environment could be pushed into harder conditions," the WTW report says.

Economic factors could shape the property-casualty market in 2024 as well, the WTW report says. The Russia-Ukraine war, the current conflict in the Middle East, and the slowing Chinese economy all raise uncertainty.

Still, the property-casualty industry remains well capitalized with $1,018.6 billion in policyholder surplus, according to A.M. Best, the WTW report notes, and improved investment yields should continue to bolster insurers' bottom lines.

Looking at the prospects for various casualty lines in 2024, WTW predicts the following rate changes in 2024.

• General liability: 1 percent to 4 percent increase
• Automobile liability: 4 percent to 7 percent increase
• Workers compensation: 3 percent decrease to 1 percent decrease
• Excess workers compensation: 2 percent decrease to 5 percent increase
• Umbrella liability: 4 percent to 8 percent increase, with a 10 percent to 15 percent increase for heavy auto/large fleet risks
• Excess liability: 2 percent to 7 percent increase, with an increase of 10 percent or greater for heavy auto/large fleet risks

"Primary and excess liability structures have evolved significantly since 2015 because of nuclear and mega verdicts," the WTW report says. "As insurer balance sheets were impacted by severity in losses and subsequent premium needs, both clients and insurers needed to change limits and structures to absorb the impact."

In the property market, WTW predicts that buyers will see premiums for non-catastrophe exposed properties remaining flat to increasing 10 percent in 2024, while catastrophe exposed properties will see 10 percent to 25 percent increases.

"Insurers remain fully focused on valuations to demonstrate to their reinsurers that their portfolio data is robust, accurate, and represents inflation adjusted replacement cost valuation when deploying capacity," the WTW report says.

Cyber-insurance buyers will see premiums ranging from 5 percent decreases to 5 percent increases next year, WTW predicts.

"Premium stabilization that began toward the end of 2022 has continued into 2023," the WTW report says. "While 2022 started with 50 percent to 150 percent increases, we now regularly see flat increases or even decreases at renewal. Increases, if any, will be the steepest for those organizations that cannot demonstrate strong cyber risk controls, culture, and overall cyber hygiene."

Ultimately, WTW says it doesn't anticipate any sudden changes one way or another in the insurance market in 2024 from the conditions experienced this year.

"Despite the shifting terrain, in the near term, we don't expect material or sudden changes in the market—for better or worse," the report says. "The property market will try to lean into the hard market for as long as possible (which could be increasingly difficult if new money comes into the market on January 1). With a constricting capital base and current insurers remediating their liability portfolios, the casualty market might attempt to drive rate increases."