WTW's "Insurance Marketplace Realities 2025": Evolution through Incremental Change

In its Insurance Marketplace Realities 2025 report, WTW provides an in-depth look at the trends impacting key insurance sectors, including property, casualty, and specialty lines, alongside emerging solutions within the alternative risk transfer and captive insurance solutions space. WTW's analysis underscores a maturing market where incremental changes have gradually overtaken the rapid transformations observed in previous years. The report highlights the industry's focus on precise risk assessment and portfolio balancing as insurers navigate evolving environmental, economic, and litigation-related risks.

Alternative Risk Transfer (ART) and Captive Insurance Solutions: Addressing Coverage Gaps and Volatility

As noted in the report, demand for alternative risk transfer (ART) solutions remains strong, especially for clients with complex risk profiles or unfavorable loss histories. Captive insurance, parametric insurance, and structured risk products are gaining traction as companies seek innovative ways to navigate coverage gaps and mitigate volatility. WTW observes that captives are especially appealing to middle-market clients and those in sectors where conventional placements are either costly or restrictive.

Among ART products, parametric options, which provide payouts based on predetermined metrics, are highlighted as a flexible option for clients seeking to manage volatility from catastrophe-prone exposures. Structured policies that blend risk financing with risk transfer are also in demand for covering layers exposed to frequent or severe losses. According to WTW, these approaches provide clients with greater control over their risk retention and help shield their financial statements from large losses that are unexpected. These strategies are particularly valuable for clients facing high-risk exposures that may not be adequately addressed by traditional insurance.

Captive Insurance Trends

The report highlights the continued demand for captive insurance, driven by increasing capacity constraints and rate pressures in traditional insurance markets. Captive formations are growing across both US and offshore domiciles, with new captives established to address challenging risk environments, particularly for sectors needing excess casualty coverage where commercial markets face significant pricing and capacity issues.

Captives are also becoming more sophisticated, leveraging advanced analytics to optimize capital deployment. Mature captives with strong reserves are now utilizing data analytics to assess risk tolerance more accurately and engage in targeted reinsurance placements, especially for risks where the primary market lacks sufficient capacity. These analytics also enable captives to address emerging risks proactively, such as climate change, terrorism, and cyber threats, before these threats gain full coverage in conventional insurance markets.

Demand for alternative structures, such as parametric solutions, is also growing within captive insurance. These products offer payout triggers based on specific parameters, like a weather event or seismic activity, rather than traditional indemnity-based claims. This approach is particularly useful for climate and environmental risks, which are difficult to underwrite conventionally. As WTW notes, parametric solutions can close coverage gaps and stabilize financial protections, particularly in industries heavily impacted by weather events and other systemic risks.

The report also highlights the significant growth in captive insurance across US and international domiciles. In the United States, captive formations are robust, with states like Vermont and Utah leading in new licenses. Offshore, Bermuda and the Cayman Islands remain prominent, with Bermuda issuing over 30 new licenses and seeing high activity in segregated accounts (cells). The Cayman Islands, traditionally focused on North American business, is expanding its reach, increasingly attracting European and Asian clients seeking a stable and efficient risk management structure.

Additionally, WTW reports that captives are broadening their scope to address complex risks such as cyber liability, environmental exposures, and the effects of social inflation. This diversification reflects an evolving landscape in which captives extend beyond core liability coverages, helping organizations manage multiline risks that traditional insurance may not fully cover. Captives offer a strategic means to mitigate the rising litigation costs and adverse verdicts linked to social inflation, enabling companies to retain greater control over claims management and allocate costs more effectively.

Property Insurance: Stabilization Amid Increased Capacity and Focus on Secondary Risks

According to the report, the property insurance sector began stabilizing in early 2024, following a challenging period marked by reduced capacity and elevated rates. WTW indicates that reinsurance capital availability has improved, fueled by favorable treaty renewals and increased capacity through insurance-linked securities and catastrophe bonds. These improvements, alongside a relatively mild 2024 Atlantic hurricane season with impactful but regionally contained storms like Helene, have contributed to more favorable renewal terms overall. However, WTW cautions that the market could shift quickly with a single major catastrophic event.

WTW's analysis points out a significant bifurcation within the property sector. Insureds who experienced substantial rate increases and restrictive terms in 2023 are benefiting most from competitive renewals, while those with stable rate and term adjustments in the previous year are seeing minimal changes. Additionally, insurers are increasingly focused on secondary perils—such as wildfires, convective storms, and freeze events—which now account for most of the $1 billion-plus loss events. This shift has led to the adoption of enhanced policy structures, including margin clauses and occurrence limit of liability endorsements for accounts with known valuation discrepancies, to manage secondary risk exposures.

Valuation accuracy remains critical, according to the report, with insurers requiring more robust backup data, such as appraisals, to confirm the statement of values and ensure balanced risk assessments. This approach helps address inflation-driven building cost increases, which have moderated but remain a focal point for insurers. WTW also emphasizes the importance of proactive risk control measures, particularly as market capacity returns, to help clients manage deductibles and premium stability within catastrophe-exposed regions.

Casualty Insurance: Persistent Challenges Driven by Social Inflation and Third-Party Litigation Funding

Casualty insurance remains under considerable pressure, with WTW noting that the line is unlikely to experience a soft market due to ongoing issues like social inflation and litigation funding. The report highlights that nuclear verdicts, which have led to increasing claim severity in products and auto liability, are a significant driver of high casualty rates. WTW projects that high hazard or "challenged" classes, especially those with low attachment points, will continue to see double-digit increases in umbrella and excess liability rates.

In the context of auto liability, WTW points to evolving societal dynamics, such as distracted driving and the growing impact of third-party litigation financing, as factors exacerbating risk. Rates for large fleet auto insurance are seeing upper single-digit to double-digit increases, while smaller fleets experience mid-single-digit rises. This trend is particularly notable for accounts with high claims frequency, where insurers are cautious about deploying capacity due to escalating defense and claims costs. Meanwhile, WTW foresees limited capacity and a competitive landscape, especially in urban areas or for industries facing heightened risk.

Within the umbrella and excess liability space, the report highlights continued pricing pressures. WTW states that insurers are reconsidering rate adequacy due to historically severe loss trends. Certain lines—such as third-party hauling, which has seen increased litigation costs—are becoming more challenging to underwrite. Furthermore, the report indicates that some insurers are responding to adverse developments by reducing deployment limits and raising attachment points for high-risk accounts.

Construction Insurance: Trends and Market Dynamics

Per the report, the construction insurance sector has shown signs of stabilization following a period of high rates and capacity challenges. Builders' risk insurance capacity has gradually increased due to favorable reinsurance renewals and a rise in quota-share arrangements for large projects. However, the report notes that insurers remain cautious about projects involving high natural catastrophe exposures, including wildfires and severe storms. Coverage policy changes, such as updates to LEG3 definitions, have also affected the underwriting landscape, particularly for high-risk construction types like wood-frame builds.

Controlled insurance programs and project-specific policies are benefiting from more stable coverage terms, with WTW observing favorable renewal conditions for most large projects. Growth sectors like data centers and life sciences facilities are gaining attention within the insurance marketplace, which, as reported, has spurred increased investment in risk management strategies. Yet, high-risk construction categories—such as for-sale residential, coastal, and wood-frame developments—continue to face elevated rates and stricter policy terms due to their loss frequency.

The report highlights that the construction industry's challenges, including labor shortages and material cost inflation, are driving the adoption of technological solutions. Tools like artificial intelligence, drones, and robotics are being increasingly used to improve project efficiency and manage risks. These advancements are particularly useful in addressing the current labor shortage, providing more precise project oversight, and enhancing risk management efforts across complex construction projects. In response to the rising frequency of project delays and claims, subcontractor default insurance is also expanding, with higher limits and adaptable terms that reflect current industry demands, as WTW details.

WTW further notes that proactive risk management will be essential in helping contractors navigate these market challenges. The adoption of technology-driven risk solutions is a key trend as companies work to mitigate losses through real-time project oversight and enhanced risk controls. According to WTW, these tools allow contractors to manage escalating risks more effectively while enabling insurers to underwrite with greater confidence across the construction sector.

Healthcare Professional Liability

According to WTW, the healthcare professional liability (HPL) market is under intense pressure, driven by rising claims costs, social inflation, and increased verdicts. Rate increases are projected across the sector, with anticipated hikes ranging from 5 percent to 15 percent for overall healthcare professional liability, from 0 percent to 15 percent for allied health, from 5 percent to 20 percent for hospital professional liability, from 0 percent to 5 percent for managed care errors and omissions, from 5 percent to 15 percent for physicians' professional liability, and from 5 percent to 15 percent for senior living.

A major concern is the shortage of healthcare professionals, which has heightened pressure on the healthcare system, making healthcare providers increasingly vulnerable to malpractice claims. WTW cites that the top 50 malpractice verdicts rose by 50 percent in 2023, averaging $48 million per verdict compared to $32 million the previous year. In response, even well-established insurers are carefully monitoring and often tightening capacity, limiting it to as low as $5 million in higher-risk venues and quoting terms with increased attachment points, particularly in professional liability and auto coverages.

Sexual abuse allegations remain a focal point for underwriters, leading insurers to implement restrictive provisions, including coinsurance and risk-differentiation index mechanisms to help manage this exposure. Additionally, workforce challenges such as practitioner burnout, understaffing, and an aging workforce are compounding HPL pressures. Plaintiff attorneys increasingly use staffing issues to their advantage, framing cases as "profits before people." Given these factors, insurers are expected to adopt more conservative underwriting practices, and some may require enhanced risk management protocols from healthcare clients to mitigate further coverage restrictions.

Workers Compensation: Profitability Amid Pressure on Other Liability Lines

WTW's findings reveal that workers compensation remains one of the few highly profitable lines within the property and casualty space. Average rates have experienced minimal fluctuation, with WTW's data indicating a slight reduction of 5.5 percent in Q2 2024. According to the report, the strong performance in workers compensation is driven by effective claims management practices and loss control measures that have reduced claims frequency over recent years. This trend is expected to continue, with incremental rate reductions predicted into 2025.

However, the report notes that insurers are closely monitoring factors that could impact future profitability, such as medical inflation and changing workplace demographics. Remote work and an aging workforce have introduced new challenges for workers compensation insurers, who are increasingly leveraging technology, such as wearable devices and automation, to improve safety and reduce claim costs.

Cyber, D&O, and Financial Lines: Soft Market Conditions with Emerging Concerns in Mid-Excess Layers

According to WTW, cyber insurance remains relatively soft, with abundant capacity and a competitive market environment. However, insurers are exhibiting increased scrutiny over mid-excess layers, where rate adequacy concerns are growing. WTW indicates that, while competition remains strong, there is mounting apprehension around excess layers attaching between $20 million and $100 million. Insurers are reassessing pricing models to address the potential for significant losses within these layers.

In the directors and officers (D&O) insurance market, the report observes similar trends, with capacity remaining high but a cautious approach to excess layers. Insurers are taking a calculated stance, particularly in sectors with heightened risk profiles, such as technology and financial services. WTW's data suggests that, while capacity remains available, the market may see shifts in terms as insurers aim to balance profitability and competitive pricing.

General Liability and Emerging Exposures: The Growing Impact of Environmental and Regulatory Risks

WTW's report outlines ongoing developments in the general liability space, where per- and polyfluoroalkyl substances (PFAS) and Biometric Information Privacy Act (BIPA) exposures are emerging as notable concerns. PFAS, often referred to as "forever chemicals," are becoming a focal point for environmental liability, with regulatory changes and litigation risks prompting insurers to issue exclusions. For companies with minimal PFAS exposure, WTW notes that some insurers may consider limited coverage, but the trend leans toward exclusionary clauses, given the potential for extensive claims costs.

Similarly, BIPA has spurred legislative action that has influenced liability pricing, particularly for industries with high biometric data collection practices. The recent amendment to the Illinois BIPA limits recoveries to single claims per biometric identifier, yet WTW warns that legal interpretations are still evolving, leaving uncertainty around potential liabilities.

The full PDF of WTW's Insurance Marketplace Realities 2025 report is available here for download.