Commercial insurance prices could start softening in 2022, but lingering economic uncertainty and the potential for claims inflation could counteract any downward pressure.
Alastair Swift, head of corporate risk and broking for Great Britain at Willis Towers Watson PLC, said in an interview that prices could begin to fall mid-2022, but that will be heavily dependent on conditions and events that are outside of the industry's control.
Prices for cyber coverage have continued to increase in response to rising ransomware claims, but are beginning to "level off" in the property and casualty space, Swift said. Most insurers have finished remediating their portfolios and are now talking about growing them again, which could lead to a weaker pricing environment. Swift said the market would be in a "delicate situation" over the coming months as any inflation could prevent the downward pricing pressure from taking hold.
Risk managers, who have faced higher prices, stricter terms and conditions and lower coverage limits in their insurance policies over the past three years, are becoming more optimistic. Julia Graham, CEO of U.K. risk managers' association Airmic, told journalists Oct. 5 that the association's third-quarter survey of members indicated there is some "calming down" in certain lines that have seen prices soar, such as directors and officers liability.
Though some lines may be seeing pricing pressure ease a bit, Sean McGovern, CEO of U.K. and Lloyd's at AXA XL, said there is "no expectation" that increases would stop "any time soon."
On top of large catastrophe events and continuing claims from the coronavirus pandemic, McGovern said the industry is dealing with "immense economic uncertainty," especially as it pertains to inflation and interest rates. Constrained supply chains are also increasing claims costs in many lines, he noted.
"With those kind of headwinds, one would expect rates to at least be stable," McGovern said. "We are starting to see rates flatten off where insurers feel they are getting to price adequacy based on what they know, but the future-looking picture is still very, very uncertain."
Rate hikes may not be as dramatic as they were in the last several years, but the industry is generally logging "decent increases," according to Claire McDonald, U.K. and Ireland managing director at HDI Global SE. Achieving profitability in lines like property damage remains "very difficult," said McDonald.
"If it hasn't been COVID, it has been floods, and if it's not floods its fires, and wherever you are there is something happening at the moment," McDonald said in an interview.
Insurance company executives acknowledged that the hard market has been tough for buyers of insurance and said clear communication with risk managers is the key to alleviating the pressure. McDonald said her company had been starting the renewal process four to five months before contracts expire.
As long as insurers are open about the reasons for the price increases, "I think clients understand," AXA XL's McGovern added.