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In today’s market, everyone is feeling the pressures of higher prices. As an insurance expert, you know firsthand how often you are faced with this conversation as it relates to your client’s premium.

And, you know that these premium increases are largely influenced by market trends that impact all customers, even ones without a claim history. These are broad trends, affecting rates for companies of all sizes, in all industries, in all regions.

To help support your conversations with your clients, we’re sharing insights on what’s driving this hard market. As always, we’ll continue to monitor rate trends vigilantly and provide additional thoughts you can share when you have a client that asks "why is my premium going up?"

Jump to: Auto | Property | Workers�� compensation | General liability | Management and executive liability | Professional liability

Understanding social inflation

Over recent years, there has been a rapid and substantial increase in the cost of liability and casualty claims, which in turn has driven up premiums. Known as social inflation, this trend includes significantly increasing jury awards and nuclear verdicts, climbing medical costs, the rolling back of statutes of limitations, more third-party litigation funding, and shifts in litigation and legal practices.

This impacts the premiums for several lines of coverage �� particularly general liability and umbrella, commercial auto and directors and officers�� lines of business �� due to the direct impact to underwriting losses and reserves of insurance companies, resulting in a higher need for rate.

• Social inflation - today and historically - holds more greatly impacts liability loss ratios than economic inflation.¹
• The U.S. market is now the center of litigation funding and accounts for over 50% of all global activity producing an internal rate of return between 20-35% for the companies that engage in litigation funding.²
• Recent industry studies show that the incidence of attorney involvement in auto liability claims has been increasing and the relative costs of resolving these claims are also on the rise.

Auto

• According to the National Highway Traffic Safety Administration, U.S. traffic deaths have jumped to the highest rate since 2005, rising 13.1% in the months after coronavirus lockdowns ended.⁴
• The Consumer Price Index for auto body work hit a year-over-year high of 11% in September 2022, whereas general inflation rates rose at an annualized rate of a little over 7%.
• Average wages for automotive technicians and repairers rose a cumulative 12.3% from 2017 to 2021, compared against an 8% increase over the previous four-year period (2013-2017).
• Litigation continues to drive up the cost of auto insurance. More than half of bodily injury claimants hire attorneys.⁵
• With the decriminalization and legalization of medical and recreational use of cannabis in many states, a continued focus is now upon us in this segment. NHTSA’s National Roadside Survey conducted in 2013-2014 found that 20% of surveyed drivers tested positive for potentially impairing drugs.⁶
• The continued decriminalization and legalization of marijuana use has led to a 4% uptick in collision claims in the period from 2012 to 2019.

Property

• Total reconstruction costs in the U.S. rose more than 9% over the past year.⁷
• Annual property loss trend increases, which insurers have to match just to keep rates in sync with loss experience, are running between 5-8%.
• Replacement cost inflation, from materials like concrete, steel, wood, and roofing, and labor for most trades, is running ahead of reported inflation levels, by up to 3-5 points on average, for each of the last three years.
• Replacement costs for building materials and labor in just the past year is running between 8-10%.
• In 2022, there were 18 billion-dollar weather or climate disasters, including hurricanes, tornadoes, wildfires, winter and other severe storms.⁸
• Hurricane Ian is positioned to be the second-worst insured loss event in U.S. history after only Hurricane Katrina in 2005.

Workers�� compensation

• Although state bureaus are showing decreasing rates for the sixth or seventh year in a row in most states, many factors, including increased benefits, the turmoil of a rapidly changing workforce, changes in claim duration patterns and challenges with medical care are indications of future rate increases.
• Workers' comp pricing is up 2.3% against a loss trend of 5.5% ⁹
• With the varying levels and mix of services needed to treat injuries, medical care prices are predicted to rise 3.6% in 2023.¹⁰
• Medical inflation is now evident in overall workers' comp costs, but prices for physician services and facility costs will be drivers of future cost increases.
• Physical medicine is a current contributor to overall cost increases.¹¹
• Enforcing safety in the workplace is a contributing factor to the current reduction in claim frequency. However, the severity of these claims has risen. This, according to experts, will eventually drive up costs.
• The labor market is still dominated by challenges from non-traditional workers, lower skilled worker shortages, an aging workforce and comorbidities within the labor force. The characteristics of the work force are going to become more evident in future claim severity patterns.
• For workers affected with COVID-19, the CDC estimates that up to 28% may suffer the symptoms of long COVID.¹² Workers' comp claims regarding long COVID are resulting in higher than average medical payments and longer durations of temporary disability. The New York State Insurance Fund projects one-third of workers affected with COVID-19 are suffering from long COVID.¹³
• Economic uncertainty, fear of recession, and wage inflation is going to add pressure to the workers�� comp line.

General liability

• Liability rates have been increasing for the last 20 consecutive quarters, with a further expectation that this will continue through 2023.¹⁴
• Companies with high-hazard products or significant premises exposures are finding it difficult to obtain umbrella limits at renewal. Purchasing higher layers of excess is often required to obtain the necessary capacity.¹⁵
• Loss ratios will continue to deteriorate as the industry deals with issues like opioid litigation, abuse claims and changes to the statute of limitations, and overall increases in severity rates.¹⁶
• Forever chemicals, PFAS/PFOA and other emerging risks are driving underwriting concerns for underwriters that may result in tighter terms and conditions.¹⁷
• Treaty reinsurers expect prices to continue to rise for casualty placements in 2023. ¹⁸
• For 2023, carriers are expected to continue rate increases in the excess casualty market with the most significant increases coming in the lead umbrella placement. Like general liability, claim inflation, medical inflation and legal inflation will all continue to affect the umbrella market.

Management and executive liability

• Rates have been rising since 2019. While publicly traded companies have experienced the greatest rate jumps, private and nonprofit organizations have also seen meaningful rate increases anywhere from 10-50% or more, depending upon size, financial stability and type.
• In 2022, more than 20,000 instances of compromised business email accounts were reported to the FBI, with estimated losses of $2.4 billion.¹⁹
• There has been an increase in allegations of discriminatory employment practices, heightened by social movements such as #MeToo and Black Lives Matter.
• Newer claim trends impacting rates include rising defense costs, as well as outsized settlements in proportion to alleged damages.

Professional liability

• Lawyers�� professional liability (LPL) �� Attorneys handling estates and trust work continue to face claims, with beneficiaries often unhappy with the division of family wealth.
• Architects and engineers (A&E) �� Heightened claim activity continues for public work, specifically schools and hospitals. Work stoppages due to limited or decreased funding has led to delays, cost overruns, change orders and project cancelations, while compressed project timelines and broken contracts have also contributed to the increase in claims.
• Miscellaneous professional liability (MPL) �� The chaotic real estate market has led to heightened competition and increased litigation against agents. A continued trend of bodily injury and property damage claims on MPL policies has also driven up loss costs.
• Accountants�� professional liability (APL) �� Reduced IRS funding has resulted in increased rejections for tax abatements. Pressure within firms to drive revenue outside of standard accounting services has led to increased claim activity as accountants step outside traditional areas of expertise.

 

 

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All products are underwritten by ����� Insurance Company or one of its insurance company subsidiaries or affiliates (“�������). Coverage may not be available in all jurisdictions and is subject to the company underwriting guidelines and the issued policy. This material is provided for informational purposes only and does not provide any coverage.