Social, Economic Inflation Increased Liability Market Pressure in Q3

While the commercial insurance market's behavior was largely unchanged during the third quarter from the prior quarter, the accumulating effects of social and economic inflation added pressure to insurers' liability reserves and pricing, according to Lockton.

In its recently released Lockton Market Update December 2023, Lockton noted that while the property insurance market remained challenging in the third quarter with an average 18 percent rate increase, liability joined property "in the spotlight" during the quarter.

Citing data from Swiss Re, the Lockton report said that persistent social inflation contributed to an average annual increase of 16 percent in US liability claims costs over the past 5 years, a trend Swiss Re called "unsustainable."

"January 1 reinsurance renewals will set the tone for the year, but casualty insurers are likely to focus on profitability and seek to keep rates well ahead of loss trends for the foreseeable future," the Lockton report said.

The Lockton report found lead umbrella rates increasing 12 percent on average during the third quarter.

In the property market, catastrophe losses continue to accumulate for insurers, while property reinsurers have responded to elevated losses by raising attachment points and offloading risks to primary insurers, Lockton said. While improved results have attracted new capacity, reinsurers have maintained pricing discipline and valuations remain a contentious element of renewal discussions.

"For now, the focus is on consolidating gains made to date and preserving profitability," the Lockton report said.

Challenges posed by the traditional market have brought alternative risk transfer solutions to center stage, Lockton said.

"Amid difficulty in the traditional commercial insurance market, alternative risk transfer (ART) solutions have moved to the forefront as viable solutions for some buyers," Lockton said. "From parametric policies to structured risk solutions, fronting schemes, and captive insurers, these options can offer another source of capacity and enable buyers to address unique issues, reduce volatility, and manage higher retentions across property and casualty."