Markets in Focus | General  |  Q3 2021

Through Q3 2021, it appears that the commercial insurance industry generally remains in an elevated pricing environment. Conditions have appeared to soften across many lines of coverage since the peak of the pandemic in 2020, but year over year rate increases remain the norm.

Overall, the trends of social inflation, increased frequency of catastrophic events, and low investment yields driven by historically low interest rates are still issues carriers are having to work through as 2021 ends. However, as the Federal Reserve looks to taper quantitative easing and reduce bond purchases, there will most likely be upward pricing pressure on interest rates, which would be a welcomed change for carriers. Timing on this remains a question mark though as the Fed has stressed flexibility on the timeframe and pace of the tapering and interest rate increases.

Regarding catastrophes, 2021 has been another challenging year for carriers and reinsurers. The year began with Winter Storm Uri shutting down much of Texas for a week in February, followed by severe flooding in Europe in July. These events, however, were overshadowed by Hurricane Ida in September. Ida made landfall in Louisiana, causing significant damage, and then continued upward all the way to New York. In total, these events are estimated to have caused roughly $47 billion123 in aggregate insurable losses. Another year of significant losses is expected to cause significant pricing pressure on reinsurance rates, which will be transferred on to carriers in their pricing structure.

As such, carriers will continue to rely on more disciplined underwriting to maintain margins in a rising cost environment. Underwriters will stress the need for effective loss controls, clean loss runs, and stable financials as starting points for coverage. However, even with all these factors, changing carrier appetites and underwriters’ desks full of submissions due to brokers looking to find the best options in a difficult market, achieving optimal results will still be challenging. Working with a broker that fully understands these challenges and is positioned with a strategy to maximize your risk management program will be key to achieve the best results.