Willis Towers Watson Report Predicts Gradually Softening Market

North American commercial insurance prices are expected to gradually soften, bringing a deceleration in premium rate increases and further stability in 2022, according to Willis Towers Watson.

In its 2022 "Insurance Marketplace Realities" report, Willis Towers Watson notes that after several annual cycles marked by steep premium increases, the commercial insurance marketplace has taken significant steps toward correcting itself.

The report notes that the forces that led to the current hard market, including systemic increases in risk from heightened catastrophe losses driven by climate change, social inflation, and rising exposures in other areas ranging from cyber risk to liability, have not gone away.

While the Willis Towers Watson report predicts the commercial insurance market will moderate, cyber liability and fiduciary liability insurance will be exceptions to the trend, the report suggests. In the case of cyber, the report forecasts even steeper premium increases.

"For the most part, we are moving toward stability as we watch the workings of a simple economic law—supply and demand," Jon Drummond, senior editor, Insurance Marketplace Realities, and head of broking, North America, at Willis Towers Watson, said in a statement. "That does not mean, however, that this is a simple marketplace. The two-tiered marketplace we highlighted in our last issue remains a reality in many lines of business; conditions are better for better risks and tougher—sometimes quite a bit tougher—for less attractive risks."

The current market is placing additional demands on risk managers to distinguish their organizations' risks in the marketplace, the report suggests. Insurers expect more and better data, and the information must be presented in a clear and compelling way, Willis Towers Watson said.

The Willis Towers Watson report concludes that insurance costs will continue to increase in the near term. While a two-tiered market remains in place, the downside of being in the higher-hazard tier is not as bad as it has been, Willis Towers Watson said.

"For better or worse, our industry will continue to move with the laws of supply and demand," Mr. Drummond said. "If supply continues to come back as it has in the second and third quarters of 2021, we could see rate decreases commence as early as the second quarter of 2022. This will not be a wholesale development across all lines, and distressed lines of business, most notably cyber, will remain challenged well into 2022."