US Commercial Insurance Market Favors Buyers Amid Lingering Uncertainty

The US commercial insurance market continues to present a favorable environment for buyers, according to the latest Lockton Market Update. However, despite these advantageous conditions, a sense of uncertainty persists, driven by economic fragility, rising liability costs, and emerging risks.

A Favorable Market—For Now

According to the report, the property and casualty (P&C) insurance market remains competitive, supported by strong financial performance in the first half of 2024. Lockton attributes these favorable conditions to factors such as rising investment income and a relatively mild wind season. Insurers are continuing to report solid profits, which, per the report, contribute to the favorable conditions across most lines of coverage.

"We're seeing generally favorable market conditions, some of the best we have seen in the last 5 years, and with insurers reporting strong profits, there's reason for continued optimism," said Mark Moitoso, Lockton's risk practices leader.

However, the report noted that liability insurance remains an exception. Despite increasing rates, conditions have stayed predictable for buyers. The report emphasized that insurers are closely monitoring social inflation, reserve adequacy, and loss trends, particularly in third-party liability lines where costs continue to escalate.

Economic and Market Insights

Lockton's report also provides insights into the economic trends underpinning the market conditions. The US economy grew at an annualized rate of 3.0 percent in the second quarter of 2024, significantly outpacing the first-quarter growth of 1.4 percent. Inflation is cooling, with the US Bureau of Labor Statistics reporting a drop from 3.5 percent in March 2024 to 2.5 percent in August, the report said. However, the report warns that core inflation remains slightly above the Federal Reserve's target, which could complicate long-term stability.

Despite these economic gains, the report highlights growing caution. Debt levels are rising, and corporate bankruptcies surged in the first half of 2024, marking the highest number since 2010. Additionally, the report indicates that CEO confidence in the economy is diminishing, with 26 percent of CEOs stating that conditions are worse than 6 months ago.

Key Sector Highlights

• Property Insurance: Per the report, the property insurance market is transitioning into a buyer's market, with rates stabilizing or even decreasing for many buyers. Lockton noted that median property insurance prices increased by only 2.3 percent in the second quarter of 2024, a significant improvement over previous quarters, when rate increases exceeded 10 percent.
• Workers Compensation: According to the report, workers compensation insurance remains highly competitive, with rates continuing to drop. In Q2 2024, median guaranteed cost rates fell by 4.1 percent, creating favorable conditions for buyers. However, the report also warns that rising costs related to large claims, medical inflation, and job turnover may pose challenges in the future.
• Liability Insurance: Liability pricing continues to rise, but at a predictable pace, the report says. General liability pricing increased by 5.1 percent in Q2 2024, while auto liability pricing rose by 9.0 percent. Despite these increases, Lockton's report reassures buyers that they can still expect predictability in this space.
• Cyber Insurance: The report notes that cyber-insurance pricing continues to decline, showing a 6.3 percent reduction in Q2 2024. However, according to the report, accumulating losses and increasing claims activity could lead to a firming market in the future.

Alternative Risk Strategies

Lockton's report highlights the growing interest in alternative risk products, such as parametric insurance and captive insurance solutions. As traditional insurance markets struggle with challenges like social inflation and natural catastrophes, the report explains that alternative products provide businesses with greater control over volatility and risk financing. These solutions, per the report, are becoming a critical component of many companies' risk management strategies.

"The commercial insurance market is much like a living organism—constantly evolving in response to the experiences of insurers," Mr. Moitoso said.

The September 2024 Lockton Market Update can be found here.