In the third quarter of 2023, commercial insurance rates in the U.S. experienced an overall increase of 3%, with casualty rates rising significantly by 10%. This marks a notable trend in the insurance market, as reported by Marsh’s Global Insurance Market Index.
Key Insights
Casualty Rate Increases: Composite casualty rates increased by 14% when excluding workers’ compensation, representing a substantial rise compared to previous quarters, where increases were only 4% each in the prior two quarters. This is the highest increase in casualty rates since the last quarter of 2020.
Factors Influencing Casualty Rates: Auto liability insurance remains a significant challenge due to large jury verdicts and rising repair costs. The loss cost trends for umbrella and excess liability have outpaced rate increases for the past five years, driven by higher claim frequency and severity, particularly in auto and general/product liability claims.
Even accounts with favorable loss histories saw umbrella program rates increase by 10% to 15%, while programs with poorer loss histories experienced increases of 30% or more.
General Liability: General liability rates saw minor increases overall, but specific sectors such as real estate, hospitality, public entities, and education faced higher rate hikes in Q3.
Commercial Property Rates: In contrast to casualty rates, commercial property rates declined by 1% in Q3, following a 2% increase in the previous quarter. This decline is attributed to increased capacity across various industries and layers of insurance programs, leading to heightened competition. Policy terms remained generally stable.
Impact of Natural Disasters: Marsh is closely monitoring the market for potential impacts from recent devastating storms during the North American hurricane season and is committed to supporting clients and communities affected by these events.
Market Dynamics: Insurers are focusing more on valuations; however, the reduction of inflation in 2023 and 2024 has lessened their emphasis on this area. Clients are increasingly considering higher retentions and alternative insurance solutions, such as captive and parametric insurance.
Financial and Professional Lines: Rates for financial and professional lines continued to decline, matching the previous quarter’s reduction of 3%. Specifically, directors and officers liability rates fell by 4% in Q3, slightly less than the 5% decrease seen in Q2.
Conclusion
Overall, the third quarter of 2023 reflects a mixed landscape for commercial insurance, with casualty rates increasing significantly due to ongoing challenges in auto liability and other sectors, while commercial property rates saw a slight decline due to increased competition. The market remains dynamic, and insurers are adapting strategies in response to changing economic conditions and emerging risks.
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