The Commercial Property & Casualty Market since 2018 has been transitioning from a soft to a hardening market characterized by rate increases, greater underwriting scrutiny, disappearing capacity, and changes (sometimes drastic) in limit availability and coverage terms and conditions.

This transition is the result of nuclear liability verdicts, sizable natural catastrophe losses, years of under-priced business, and continued low-interest rates, which have negatively impacted the bottom line of insurers.

In addition, the confluence of events in the first half of 2020 – from the COVID-19 pandemic that forced countless business closures and record unemployment numbers to the recent riots in cities across the U.S. that shuttered already struggling businesses after a three-month lock-down – is set to impact the hardening insurance market further. We took a look at the perfect storm of events that have brought us to where we are today — an industry facing a very unique set of circumstances and responding in an environment rife with uncertainties.

A Look at Q1 Insurance Data

Respondents to a survey conducted by the Council of Insurance Agents & Brokers (CIAB) cited moderate to significant premium pricing increases during the Q1 2020 for all account sizes and all lines of business except workers’ compensation. Large and medium-sized accounts were hardest hit, recording average increases of 12.6% and 9.8%, respectively, while small accounts experienced lower increases in most cases. Umbrella, auto, D&O and property lines in the CIAB survey also saw the most significant increases.

Impact of COVID-19 on the Insurance Industry

The COVID-19 pandemic is on track to become the largest event in the history of the insurance industry. “The breadth and depth of the event, how it is affecting multiple geographies and multiple segments of the insurance market - this is really something that dwarfs the other major events in recent history,” says AM Best.

Lloyd’s of London has already estimated the pandemic to cost the insurance industry an unprecedented $107 billion, excluding life insurance, although it’s important to note the story of COVID-19 is still unfolding. Almost one-third of the paid losses will be for canceled events such as conferences and concerts, and 11% will cover credit losses. Property claims will make up 29% of the total, paid to a few large companies that have coverage for pandemics included in their policies.

The National Council on Compensation Insurance (NCCI) reported a staggering range of potential losses—$2.7 billion to $81.5 billion—for U.S. workers’ compensation lines.

The Business Interruption (BI) Factor

Amid the COVID-19 pandemic, the dispute over loss of income coverage has been a key issue for insurers and businesses throughout the country. BI policies typically do not provide coverage for losses related to government-mandated shutdowns due to a virus, prompting legislative and regulatory pressure on insurers to pay business interruption losses regardless of what their policies say. We are also seeing a significant uptick in litigation by businesses seeking to determine if coverage exists under such policies. The insurance industry, business associations, and legislators have put forth various proposals to determine how best to address business-income losses as a result of government-mandated closures, however, to date there hasn’t been any movement on this front.

Some estimates indicate BI claims could cost the industry between $150 billion and $400 billion per month without a government-backed program — figures that could easily bankrupt the insurance industry in short order.

COVID-19 has also made the availability of some coverages and limits more difficult to secure, particularly for certain classes of businesses and industries. Despite the myriad challenges from many fronts, insurance leaders are nevertheless pressing on, sharing information and gathering lessons learned for the industry’s future benefit. Looking ahead, innovations in products and processes are expected to emerge from this catastrophe.

Impact of Recent Civil Unrest

The recent looting and vandalism of businesses that took place in cities across the U.S. will also impact the insurance industry as property damage and business interruption claims mount. According to Artemis, which provides media and analysis on catastrophe bonds, insurance-linked securities (ILS), and reinsurance, losses from the civil unrest could reach up to $1 billion.

It is expected that the economic situation and pandemic, further complicated by the recent rioting, will very likely serve to extend the hard market through 2021.

The Path Forward

The insurance industry is strong, sound, well-positioned, and ready to deliver in the face of recent events. What’s important during a hard market is for clients to continue working with insurance professionals to help navigate exposures. This involves boosting risk management practices to better control losses; providing access to markets; and getting ahead of renewals to address stricter underwriting guidelines and negotiate coverage terms, policy limits and retention levels. These unprecedented times underscore the increased role risk assessment and risk mitigation will play in business recovery, continuity, and sustainability moving forward.

Want to learn more about how the events of 2020 will impact your commercial insurance renewal? Complete the form to the right to download the full Mid-Year Market Outlook.