Looking Ahead to 2022 - PROPERTY & CASUALTY CONSIDERATIONS FOR THE COMING YEAR - Woodruff Sawyer
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Looking Ahead to 2022 PROPERTY & CASUALTY CONSIDERATIONS FOR THE COMING YEAR
TABLE OF CONTENTS
4 Introduction
6 Commercial Lines Forecast for 2022
10 Property Update: A Cautious But Optimistic Market
15 Casualty Update: Market Outlook and Renewal Strategy for 2022
23 Middle Market Update: Firming Rate Conditions Persist
27 Middle Market Underwriters Survey Results
30 Ask The Underwriter: Cargo Market Perspective
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 3
INTRODUCTION
Carolyn Polikoff
Senior Vice President,
National Commercial Lines Practice Leader
415.402.6513 | cpolikoff@woodruffsawyer.com
View Bio
LinkedIn
The last few years have been a reckoning year, we once again asked several cargo
for the insurance industry. Years of underwriters at Lloyd’s of London to provide
decreasing premiums were incompatible their perspective on both the market and
with the reality of frequent and more severe how cargo insurance may help in the supply
natural catastrophes, increasing jury awards chain issues dominating the news headlines.
in liability cases, and medical cost inflation.
Having a knowledgeable and trusted
The impact on insurer balance sheets was
insurance broker to help you navigate the
unsustainable and insurance companies
complexities of risk is critical in all types
acted by increasing premiums and cutting
of insurance markets. We help our clients
limits, causing pain for insurance buyers
untangle the complexity of both existing and
globally. Just when we thought insurance
emerging risk, advise on ways to mitigate risk,
buyers might feel relief, COVID-19 entered
and provide creative solutions in insurance
the picture and extended challenging market
program design—our efforts are focused on
conditions into 2021.
helping you achieve your growth goals.
The objective of our annual P&C Looking
Ahead Guide is to give our clients guidance
around what to expect in the coming year.
In addition to premium forecasts, we offer
actionable steps for buyers to mitigate risk.
As we look ahead to 2022, we see signs of
positive change for insurance buyers.
We don’t recommend budgeting for
decreasing insurance premiums just yet,
but the steep increases of the last few years
appear to be leveling off. Our property,
casualty, and middle-markets experts discuss
the factors they expect to shape trends in
2022. Continuing a feature we debuted last
TABLE OF CONTENTS
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 5
US INSURANCE MARKET UPDATE
COMMERCIAL LINES
FORECAST FOR 2022
Carolyn Polikoff
Senior Vice President,
National Commercial Lines Practice Leader
415.402.6513 | cpolikoff@woodruffsawyer.com
View Bio
LinkedIn
There is a noticeable shift in the wind in Our friends at ALIRT Insurance Research
favor of insurance buyers in 2022, and summed up this unusual competitive
we are optimistic for many, if not all, situation in their “Three Months 2021” report,
noting, “What appears to be pushing rates
segments of the commercial lines market
higher is not insurer’s fear of insolvency (or
in the coming year. This time last year,
substantial balance sheet deterioration) but
COVID-19 was on everyone’s minds because
rather the fear of subpar returns on equity.
vaccines had not yet been implemented
Put another way, the rate environment is not
and most of the global economy was in
reacting to fear of the regulatory and rating
lockdown. COVID-19 is still an issue and
agency but fear of the investor class.” (ALIRT
variants have led many to expect that
Insurance Research, 2021)
COVID-19 is here to stay. The sentiment,
at least in the insurance industry, has For their part, insurers cite “uncertainty
shifted from uncertainty to adaptation. factors” as contributors to continued elevated
rates. In Q2 2021 insurer earnings releases,
In our Looking Ahead to 2021 Guide, we
most of the largest US insurers mentioned
commented that “no one was blinking.” This
“social inflation” as one uncertainty factor
comment was based on the observation that
that will perpetuate the current rate
insurer balance sheets were relatively healthy,
environment for several quarters. According
but rates continued to rise through 2020. In
to a report recently released by the Geneva
past years, healthy balance sheets led to a
Association, social inflation “refers to all ways
competitive buyers’ market because insurers
in which insurers’ claims costs rise over and
felt confident enough to take on more risk (by
above general economic inflation,” such as
offering more limits) and/or decrease rates
increasing jury awards, the litigation funding
to capture market share. Unfortunately, we
trend, and medical cost inflation. Other
haven’t seen much evidence of competitive
uncertainty factors that insurers mention are
actions like these in 2021.
cyber and the impact of climate change. We’ll
cover cyber in more detail in our upcoming
Cyber 2022 Looking Ahead Guide, to be
released in January. Climate change includes
increased frequency and severity of storms,
wildfires, and flooding. We’ll discuss this in
more depth in our Property Update.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 7
Our View of 2022: In our experience, high-quality property
and casualty placements are often
Optimism, with Pockets
oversubscribed, with rate increases less
of Upward Trends than 5%. Certain industries and risk factors
remain challenging. On the property side,
Our insurers’ optimism around continued
wood products, heavy manufacturing,
rate increases may be wishful thinking. The
and food & beverage are challenging
Q2 2021 CIAB survey reported that average
sectors, and any risk with a wildfire
commercial lines rate increases in the quarter
exposure can expect rate increases. In the
were 8.3%, down from 10.0% in Q1 2021.
casualty segment, large fleet exposures
will draw scrutiny and increased rates.
The magnitude of rate increases Our view of 2022 is that rate increases will
for average commercial lines rates flatten throughout the year, particularly in
has lessened since Q4 2020 property and casualty. Almost every month
in 2021 has brought news of a new market
entrant—it takes time for new markets to
get up and running, but most should be fully
operational and quoting new business
in 2022.
By-Line Second Quarter 2021 Rate Changes Ranged from 0.3% to +17.4%
25% Umbrella
Commercial Property
20%
Average
15% Commercial Auto
General Liability
10%
Workers’ Comp
5%
0%
Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
Source: The Council of Insurance Agents & Brokers
8
New market entrants increase competition,
which should drive rates lower. High-quality Regardless of whether rates are
risks may even see some rate decreases by rising or falling, there are certain
late 2022. Our forecast of flattening rate best practices insurance buyers can
increases also applies to the D&O market. follow to improve renewal results:
See our D&O Looking Ahead Guide to 2022
Start early and establish
for a deeper dive into this segment of the relationships with
commercial lines market. your underwriters.
Unfortunately, our optimistic view of Work with your broker to gather
2022 does not apply to all segments of detailed information about your
risk. This will help differentiate
the commercial market. We expect cyber
you in the market.
premiums to increase through 2022 as the
industry struggles with massive ransomware Address loss control
losses. See our January Cyber 2022 Looking recommendations and
discuss these efforts with
Ahead Guide for a more detailed analysis of
your underwriters. Proactive
trends in this market. loss control demonstrates to
underwriters a commitment
to risk mitigation.
Cyber Insights: Stay up to date and
get your Cyber Looking Ahead Guide
in January 2022 >>
TABLE OF CONTENTS
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 9
PROPERTY UPDATE
A CAUTIOUS BUT
OPTIMISTIC MARKET
Mark McEvoy
Vice President, Property Practice Leader
415.402.6617 | mmcevoy@woodruffsawyer.com
View Bio
LinkedInWe’re excited about 2022. The commercial Europe experienced significant flooding,
property insurance market is moving in particularly in Germany, and severe
a more favorable direction for insureds. convective storms throughout June and July.
We’re seeing increased competition among China experienced flood losses estimated
renewals, and additional capacity continues to be $2 billion, and Japan experienced a 7.1
to enter the market. Carriers are developing magnitude earthquake in February.
creative solutions to address an ever-
changing risk landscape, offering more In addition, severe convective storm losses
capacity, and coverage is stabilizing. continue to plague property loss ratios.
The positive momentum isn’t without
challenges, though. Losses in the first half of “ Secondary peril events accounted for
more than 70% of the natural catastrophe
2021 are estimated at $40 billion—25% higher insured losses, resulting mostly from severe
than the 10-year average of $32 billion. The convective storms (SCS) and wildfires. In the
last 10 years, SCS have contributed more
largest contributor to 2021’s first-half losses
than half of global insured losses from
was Winter Storm Uri, causing estimated secondary perils.”
losses of $15 billion. Furthermore, we saw
SWISS RE SIGMA REPORT
significant losses in Europe and Asia.
10 Years of Global Insured Losses from Secondary Perils
160 Earthquakes/tsunami
Weather-related
140
Man-made
120
10-year moving
100 average total
insured losses
80
60
40
20
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Swiss Re Institute
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 11Not to be outdone, projections for the On the West Coast, wildfires rage throughout
second half of 2021 indicate a higher-than- the state of California, with the Dixie Fire
average hurricane season. To date, 17 named continuing for over two months and nearing
storms have occurred, with Hurricane one million burned acres.
Ida, which made landfall on August 26th,
causing significant damage. Fortunately,
the improvements in risk mitigation and A higher-than-average hurricane
building codes since Hurricane Katrina in season is predicted for the
2005 reduced the potential loss impact of second half of 2021.
the storm; however, inland flooding and loss
Predictions by: CSU NOAA Average
amplification have increased insured loss
estimates from $20 billion to $30 billion. What Named
18 18 14
Storms
was initially thought to have a minimal impact
Hurricanes 8 9 7
on the insurance industry could now affect
carriers’ full-year profitability and ultimately Major
4 4 3
Hurricanes
increase the scrutiny around a peril already
The average is determined by the average number of each
under the microscope. event per year, dating since the beginning of data collection.
Source: Colorado State University and National Oceanic and
Atmospheric Administration
8 of 10 Largest Wildfires in California History Occurred in Last 5 Years,
due to Warmer Weather and Lack of Precipitation
Cedar, 2003 273,246 acres Last 5 Years
Rush, 2012 271,911 acres
Thomas, 2017 271,911 acres
Mendocino Complex, 2018 281,893 acres
North Complex, 2020 318,935 acres
LNU Lightning Complex, 2020 363,220 acres
Creek Fire, 2020 379,895 acres
SCU Lightning Complex, 2020 396,624 acres
August Complex, 2020 1,032,648 acres
Dixie (ongoing), 2021 764,135 acres
12since 2017, underwriters have new business
Track Your Wildfire Risk goals, which will generate competition in
with Mapping >> 2022. In addition, clients’ risk mitigation
efforts of the past four years are bearing
fruit, with incumbent carriers looking to
Yes, risk increases daily, and we’re seeing
expand capacity and offer more favorable
the impact of increased loss activity.
terms and conditions.
However, the commercial property market
continues to move in a positive direction. In 2022, we will continue to see the adoption
The average property rate increase YTD2021 of alternative means of risk transfer. For
is 8%. Additionally, we have achieved rate example, we’ve seen a renewed interest in
reductions on multiple renewals by creatively parametric products. A parametric product
restructuring programs and introducing new defines specific parameters, such as the
capacity. We expect even better results in intensity and location of an earthquake,
2022 for insureds that continue to prioritize and, if the conditions are met, payment is
risk improvement. made within days of the event. We will also
see the increased involvement of MGAs and
New capital will continue to have a favorable
continued development of AI, improving
impact on commercial property insurance
claims payment abilities, automatic capacity,
renewals. For what seems like the first time
and policy reviews.
Commercial Property Rate Increases Are Slowing
16%
14%
13%
12%
10%
10%
8%
6%
4%
2%
0
Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
Source: The Council of Insurance Agents & Brokers
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 13While we are looking forward to what 2022
brings, uncertainty still lies ahead. Some US coastal areas are far more
risks continue to see pressure from property crowded, magnifying risk and
markets due to risk quality, valuation, potential losses
reduced appetite for certain occupancies,
and/or continued losses. Climate change is
having a major impact on carriers’ ability to
underwrite and offer insurance. According to
NOAA, “In the US, 127 million people live in
coastal counties. That’s as much as the entire
population of Japan. If they were their own
nation, the coastal counties of the US would
Population Density 2020
rank third in the world in gross domestic Source: National Geographic
product, beaten only by China and the US
as a whole. Coastal areas are also far more
crowded than the US as a whole; population
density is over five times greater in coastal We Untangle, Advise,
shoreline counties than the US average.” and Solve for You
Risk and the potential losses associated with
Property insurance does not need
these types of changes become magnified.
to be a mystery. But it does need to
Historical losses are not adequate to predict
be reviewed carefully and often—by
the future, as the correlation between
experts who know your business
economic activity and projected losses
and the market. Woodruff Sawyer’s
continue to merge.
comprehensive process reveals a
The questions remain: Are past losses still broader view of your risk within the
indicative of future losses? Can all risk be context of an evolving risk landscape.
transferred? Or does there need to be a With expertise in loss control, risk
greater focus on risk mitigation? What is the mitigation, alternative risk funding,
impact of the migration to climate-affected and cost-of-risk analysis, we’ll help you
areas on underwriting? Insureds need to be navigate the complexities of insurance,
considering these changing dynamics. ensuring that your programs are well-
priced and carefully tailored.
TABLE OF CONTENTS
14CASUALTY UPDATE
MARKET OUTLOOK
AND RENEWAL STRATEGY
FOR 2022
Evan Hessel
Casualty Practice Leader
949.435.7387 | ehessel@woodruffsawyer.com
View Bio
LinkedIn
Stephen Glazier
Vice President, Casualty Loss Control Specialist
720.593.5409 | sglazier@woodruffsawyer.com
View Bio
LinkedInThe outlook for 2022 looks like it will be Workers’ Compensation:
a difficult environment for most lines of Best-Performing Line
coverage, with some notable exceptions.
Auto, general, and umbrella liability rates Heading into 2020, the COVID-19 pandemic
remain strained by increasing claims costs and resulting economic uncertainty signaled
and poor underwriting results. By contrast, an inflection point for workers’ compensation.
workers’ compensation and high excess Rates seemed to have bottomed out after
casualty are stabilizing and attracting five years of decreases. Concerns that
reinvigorated insurer competition. huge numbers of workers would contract
COVID-19 while on the job terrified insurers.
The current market, while difficult, provides Underwriters sought modest rate increases
an opportunity for risk managers to for the first time in five years.
rethink how they manage their overall
insurance portfolio, while also refocusing What’s clear now is that workers’
on basic risk management best practices compensation (WC) remains the most
that may have been deprioritized during competitive and best performing major
the peak of the COVID-19 pandemic. In property and casualty insurance line.
this section, we provide guidance on Insurers’ ability to drive rate increases
the rate environment for major casualty is minimal. According to the Council of
coverage, advice on structuring an Insurance Agents and Brokers Q2 2021 Rate
overall program in the current market, Survey, rates increased by just 0.3% in the
and recommendations for strengthening beginning of 2021.
employee safety and liability controls.
COVID-19 losses were
financially immaterial
to WC insurers
Estimated small losses of 0.62%
16While the pandemic slowdown cut into Organizations with strong employee health
overall written WC premium, loss trends and safety programs, comprehensive
remained favorable with only a slight increase COVID-19 controls, and proactive, data-
in medical and lost wage expenses, partially driven claims management strategies can
offset by a decline in loss adjustment expect two perks: they’re able to both
expense, per the National Council of negotiate favorable WC rates and leverage
Compensation Insurers. COVID-19 losses the WC program to drive insurer competition
were financially immaterial to WC insurers, for tougher lines of coverage—namely
generating an estimated $260 million of general/products liability, commercial auto,
losses on $42 billion in premium. While the and umbrella liability. We anticipate rate
Delta variant poses serious public health movement of -5% to +3%.
concerns, increasing vaccination rates and
employers’ abilities to mandate either
vaccination status and/or masks suggest Commercial Auto: Still Rising
COVID-19 WC losses are under control.
Providing auto liability coverage remains a
hugely risky proposition for US insurers. At
The New Normal: Post-Pandemic first glance, underwriting results seem to be
Workers’ Comp Claim Challenges improving, bolstered by years of successive
and Opportunities >> rate increases. Fitch Ratings calculates that
Get an overview of both the positive the combined ratio for commercial auto
and negative developments in WC improved 7.8% to 101.6% in 2020.
claims, the impact on employers,
and new claim strategies.
Combined Ratio Refers to the
Percentage of Total Losses and
Underwriting Expenses Relative to
Rate Forecast for 2022
Premium Collected
Risk managers have an opportunity to use Any combined ratio over 100%
their workers’ compensation renewal as a indicates an underwriting loss.
stabilizing force for their overall insurance
program. Fueled by solid underwriting results
and recent increases in investment income,
insurers are competing vigorously to write
workers’ compensation coverage for well-
managed risks.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 17The overall result is a bit misleading. The Commercial General Liability
volume of auto claims declined 25.6%
during 2020, as the pandemic limited driving The continued forces of increasing litigation
activity for many businesses. Yet the average rates, jury awards, and settlement amounts
payments for auto accidents increased continue to drive up rates for primary general
14.3% over that period. With auto repair and products liability. Per CIAB, rates rose 6%
and medical treatment costs still on the rise, on average in the first half of 2021, though
insurers are concerned that auto losses will increases were steeper for businesses in
surge once driving activity rebounds to pre- high-hazard industries: manufacturers
pandemic levels. Insurers obtained a 9% of tough products (e.g., kids goods, auto
average rate increase for auto in the first or medical parts, chemicals), habitational
quarter of 2021. real estate owners and operators, sharing
economy firms (on-demand delivery or
services, home sharing), and companies
There was a 9% average rate with material wildfire exposure (utilities and
increase for auto coverage in forestry concerns).
the first quarter of 2021
Rate Forecast for 2022
We anticipate rates of +4% to +9%.
Rate Forecast for 2022
We anticipate modestly slower rate increases
of +6% to +10% for auto as insurers creep
toward profitability.
18Umbrella and Excess Liability Westfleet Advisors estimates that litigation
financing, in which private investors fund
The excess casualty market can be claimants’ litigation against corporations,
characterized by a mix of both good news grew 18% to over $11 billion in 2020.
and bad news.
Woodruff Sawyer’s analysis of Advisen
large auto liability claims data illustrates
The Bad News the impact of social inflation. We looked
The frequency of severe ($15 million or at four-year windows in order to eliminate
greater) liability losses is expected to continue the impact of year-to-year variability.
to grow as a result of social inflation, which is The number of auto liability claims with
the phenomenon of increasing claims costs settlement and judgment value of $15 million
due to changing societal factors, such as legal or greater increased 168% from 35 for the
advertising, litigation financing, the appeal 2008–2011 window to 94 from 2016–2019.
of class action lawsuits, and growing public
distrust of corporations.
Advisen Data Shows Catastrophic Auto Liability Claims On the Rise
Analysis considers US-only Auto Liability cases with recorded settlement or award value
greater than $15 million. Losses are sorted by year of settlement or judgment.
Lower Variability Moderate Variability Higher Variability
39
94
62
35
2008–2011 2012–2015 2016–2019
20 19 20
17 16
14
10 10 11
9
6
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Analysis considers US only Automotive Liability cases with recorded settlement or award value greater than $15M.
Dollar amounts are not inflation trend adjusted.
Source: Woodruff Sawyer, Advisen MSCAD
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 19The increasing frequency of severity Consider, say, packaging a profitable workers’
has led to huge underwriting losses for compensation program with more difficult
excess casualty insurers, particularly in auto and umbrella coverage. For the higher
the umbrella and lower layers of an excess excess layers, seeking to arbitrage different
casualty tower. Insurers have reacted by layering structures and engaging an array
demanding significant umbrella rate increases of incumbent insurers and new market
for essentially all risks with meaningful participants is critical in optimizing the
products, auto or premises exposures, while overall excess tower cost.
simultaneously requiring higher underlying
limits in order to bump up umbrella
attachments for certain accounts.
Over the past two years, higher excess layer
underwriters have further compounded the
For large For small
pain. Insurers slashed capacity while setting
companies commercial and
prices for reduced layers at much higher
(revenues of middle-market
ratios to the umbrella than in prior years
$1 billion), firms (less than
we anticipate $1 billion+),
The Modestly Good News rates of we anticipate
on Excess Casualty +10% to +20% rates of
At least $100 million of new underwriting +15% to +30%
capacity has entered the US casualty market,
chasing newly increased rates and driving
competition for layers of excess towers
above $25 million. Revisiting Workers’
How should a strategic insurance buyer Compensation Best Practices
approach the tumultuous excess casualty and Ergonomics
market? For the challenging umbrella layer,
COVID-19 required risk and safety managers
the key is to develop a data-rich narrative
to quickly reprioritize employee protections
of risk management and safety controls to
from the virus above other critical risk
present to underwriters, while also leveraging
functions (such as auto fleet safety, product
relationships with the incumbent umbrella
quality control, and other workplace
insurer and other insurers represented in
conditions). As employees continue to return
your broader portfolio.
20to workplaces and adapt to life with COVID-19 Telematics, motor vehicle report (MVR)
more controlled, risk managers have an monitoring, strict electronic device
opportunity to revisit basic workplace safety policies, and other controls are, in some
and ergonomics policies. cases, being looked at as basic controls.
As employees start to get back on the
Most employers have experienced some road in owned or non-owned vehicles
disruption in their workforce and the ways to conduct business, these types of
that jobs are done and safety programs controls and a way to communicate
function. This is true for manufacturers, them to your carrier are advantages.
processors, financial institutions, technology
firms, and almost all other employers. Hazardous Energy Control /
In some instances, the impact on safety LOTO and Guarding
programming has been negative.
Some shifts have run shorthanded, and
As you review injury trends and costs from production demands have been high on
this past year, you will likely see some familiar those continuing to produce goods. These
categories in those losses. Redeveloping pressures can result in shortcuts, lack of
or maintaining a focus on those exposures training, and a less formal safety effort
causing loss is important for the future of around machinery.
your programs and their performance, both
This is a good time to do an audit of your
now and post-pandemic.
controls around machine-based exposures.
Common Disruptions and Ergonomics
Their Solutions: Ergonomic-based injuries are among the
Fleet top drivers of workers’ compensation losses
for most employers. While COVID-19 forced
Motor vehicle accidents (MVAs) are still the
some employers to create more flexible
number one cause of work-related fatalities.
assessment methods and equipment
Auto loss awards are continuing to grow,
policies to address at-home work, it
and the commercial auto liability market is
also forced other employers to produce
employing tighter underwriting controls in an
goods with fewer available employees.
attempt to control losses. Insurers continue
to ask for more and more information and
require tighter controls to obtain coverage
and favorable terms.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 21Post-Injury / Incident Investigations
Ergonomic-based injuries If you have contact-tracing fatigue, you may
are among the top drivers feel like this topic is a bit torturous—but
of workers’ compensation it is a necessary measure. If your post-
losses for most employers injury investigation process has been
pushed aside or is a bit behind, be sure it
Investing in engineering controls, is brought back online. There is no better
ergonomic committees, and leveraging way to add detail to high-level trends
ergonomic expertise can yield larger than to dig into your actual losses.
dividends in this atmosphere.
Safety Policy and Procedure Review
Safety Meetings Periodic review of safety policies and
If your safety committee meetings have procedures is something many companies
been on hold or focused solely on COVID-19 do during slower times of the year. If the
prevention, you may wish to conduct pandemic has kept your safety team and/or
a trending and mitigation exercise to committee busy, you may find that general
reinvigorate loss prevention in other areas. safety policy and procedure review has fallen
behind. Keeping your policies up to date and
Safety Observations relevant is one key to staying in compliance
and preventing injuries.
With many employers facing staffing
shortages, safety observation programs
have suffered in some instances. If
COVID Return-to-Work
you utilize observations to help drive
Resource Center >>
losses down, be sure they are up to
date and, if needed, restarted. Get checklists, templates, and
sample plans to help you make
your return-to-office program
successful for your employees and
your business.
TABLE OF CONTENTS
22MIDDLE MARKET UPDATE
FIRMING RATE
CONDITIONS PERSIST
Paul Glover
Vice President, Real Estate
415.399.6489 | pglover@woodruffsawyer.com
View Bio
LinkedInThe property and casualty middle-market What is the State of the
sector comprises firms with $10 million Insurance Market for
to $500 million in annual revenue. This
Mid-Size Companies?
broad and diverse segment of the economy
contains over 200,000 businesses across the Challenging market conditions still exist
United States. A whopping 85% of firms are for middle-market companies. Social
privately held and account for about 33% of inflation is driving tort costs higher,
total GDP and employment. impacting automobile, general liability, and
umbrella rates while underwriting capacity
is difficult to source. Medical and cost
85% of firms are privately
of goods inflation is creeping up, driving
held and account for
carriers to seek adequate returns through
about 33% of total GDP
higher rates, increased deductibles, and
and employment
more restrictive terms and conditions.
Low interest rates continue, with investment
At the end of Q4 2020, middle-market firms yields dropping 30 basis points from 2019
were showing annualized revenue growth to 2020. Despite concerns about inflation,
rates north of 8% and employment growth interest rates are likely to remain at
exceeding 5%. According to the 2021 Chubb historically low levels that don’t generate
Middle Market Indicator report, a survey meaningful investment portfolio returns for
of firm management indicated that 70% of insurers. Low interest rates pressure carrier
respondents would be spending a marginal investment income as policyholder premiums
dollar earned on investment. are invested. This means carriers must make
more profit from underwriting. The impact on
This bullish sentiment was prevalent across
policyholders are higher rates, lower capacity,
firm sizes, geographies, and industries.
and increased deductibles.
This means that companies are growing,
hiring, and investing, which presents risk We expect that carriers will need to earn
management challenges and higher insured an adequate return from their books of
exposures. Mid-size businesses should business, which results in firming prices for
proactively consider the workplace safety middle-market buyers. Volatile investment
impacts as new hires are added and trained. markets pressure both fixed income and non-
Expanding product lines and new facilities fixed income portfolio returns for carriers,
require an insurance program that grows with which will further exacerbate this trend.
your company to meet new exposures.
24Weather-related losses that aren’t connected
to natural catastrophes continue to increase 2022 Direct Premium Growth
in both severity and frequency. Attritional Estimates by Line
property losses from the pandemic include (Contemplates Rate and Exposure)
vacant buildings and water damage claims,
which are forcing carriers to increase rates Commercial
10%–12%
Auto
in the middle-market space. This means
that losses continue to accelerate, and we General
8%–10%
expect carriers will continue to increase rates, Liability
tighten terms, and raise deductibles across
Commercial
their portfolios. 8%–10%
Property
The COVID-19 pandemic continues to Workers’
1%–3%
Compensation
impact firms across the US middle market.
Cash is short, supply chains continue to
face disruptions, working capital is being
actively managed, and management revenue Market for Packaged Insurance Programs
estimates for the next 12 months are unclear. Many middle-market firms bundle several
Some firms that were severely impacted by lines of insurance together in a packaged
the pandemic in the retail, hospitality, and program. The carriers we work with view
restaurant industries face tough decisions this as a highly profitable and desirable
about expanding payrolls, and many are part of the market. Limits are often lower
deferring expansion plans while pulling back than the large account segment, making
on investment in capital equipment. All of it slightly easier to find capacity. The
these trends may cause premiums to increase middle-market package product type has
as insured exposures, payrolls, and property performed differently from the large and
limits grow. small account segments of the market.
When insureds bundle their policies with
a single carrier, it allows profitable lines to
See our Middle Market
offset unprofitable lines and may result in
Underwriters Survey section to get
a more stable program during a firming
carrier insights into the insurance
market. As a result, there is a strong new
rate environment for 2022 >>
business appetite for high-quality middle-
market accounts from our carrier partners.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 25Travelers is one of the largest middle-market
insurers in the US, with over $9 billion in TAKE ACTION NOW
written premiums in this segment. According Five key questions to
to the carrier’s Q2 earnings report published consider for 2022
in July 2021, the middle-market segment
How is your current broker
posted rate plus exposure growth of 9.1%. 1 increasing the value of
Within this portfolio, a whopping 84% of your business?
accounts experienced a rate increase during
Q2 2021. Are you sure that you are
2 properly covered?
What would happen if your
Our Expectations in 2022 3 largest location were shut down?
• Economic recovery will continue as When was the last time your
consumer spending and payrolls increase. 4 program was benchmarked
or reviewed?
• Historically low interest rates will persist,
which will keep insurers focused on How are you using data and
underwriting profitability. 5 analytics to reduce your total
cost of risk?
• Increasing premiums and reduced capacity
will likely continue for companies with less-
than-desirable risk profiles.
• Reinsurance capital raising should
accelerate, but not to the extent we saw
after the 9/11 attacks in 2001. Most new
capital raised is going to existing companies
or new companies with experienced
management teams. For example, Beazley,
Hiscox, and Conduit Re raised over $1.1
billion in new capital.
TABLE OF CONTENTS
26MIDDLE MARKET UNDERWRITERS SURVEY RESULTS
Our middle-markets premium growth estimates are based on what we have experienced
in recent insurance placements and what our brokers are hearing from underwriters. We
also recently surveyed underwriters specializing in middle markets at 12 insurers to learn
whether our experience matches the underwriters’ view of the market. We’ve summarized
our survey results here, which includes responses from insurers such as CNA, Chubb, The
Hartford, Liberty Mutual, and Travelers.
Auto & Workers’ Comp
The survey results are consistent with the trends we are
seeing. Auto continues to be an unprofitable line for insurers,
and buyers should expect premium increases until this
situation improves. Workers’ compensation is a bright spot for
Expect premium
insurers, especially now that the fear of large COVID-19 losses
increases in auto
has passed. Workers’ compensation premium increases that
insurance and
buyers experience will likely be due to exposure increases (i.e.,
workers’ comp.
payroll) as opposed to rate increases.
General Liability
The underwriters’ responses around general liability
expectations were somewhat surprising in that the majority
of respondents expect premiums to either stay flat or
decrease by no more than 5%. Almost 40% still expect
The majority of
an increase of more than 5%, but the expectations of the
underwriters
majority are worth noting. A challenge in forecasting middle
expect premiums
markets premium is that this segment includes a variety of
to remain flat or
exposures. An underwriter will have a very different view of
decrease by no
the general liability exposure of a software company versus a
more than 5%.
chemical manufacturer. Regardless of industry distinction, the
underwriter sentiment is encouraging.
28Coverage Expanding or Narrowing
Our survey result in this area is promising for buyers, as
the majority responded that coverage will either stay the
same or broaden. About 40% believe coverage will be
more restrictive, but our experience is that underwriters The majority of
only seek to reduce coverage on a risk-specific basis as underwriters
opposed to narrowing coverage for all buyers. We also said coverage will
asked specifically about potential wildfire exclusions on either stay the
umbrella/excess liability policies because we’ve seen a few same or broaden.
insurers attempt to add this exclusion. The good news is
that a resounding majority of underwriters do not plan
to exclude this from umbrella/excess liability policies.
TABLE OF CONTENTS
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 29ASK THE UNDERWRITER
CARGO MARKET
PERSPECTIVE
Will Ripley
GAWS of London
wripley@gawsof.london
LinkedInUnderwriting losses over the past three years As Head of Marine & Cargo at GAWS of London,
led to a reduction in capacity of cargo insurers I interviewed two newly established cargo
globally. The contraction in capacity, coupled insurers with experienced underwriters leading
with poor underlying results in the cargo risk their cargo teams and two established and well-
code, led to a hardening of the market in London respected London cargo syndicates to get their
and the rest of the world. Common rate rises on views on the market and what insurance buyers
accounts had ranged from 10%–50%, depending should expect in 2022.
upon loss record and industry. Coverages have
been stripped back, removing the “coverage GAWS of London is a Lloyd’s of London
creep” of the soft market, and policies are now licensed broker and a joint venture between
reverting back to traditional “physical loss or Woodruff Sawyer and our UK Assurex partner,
damage” triggers. Griffiths & Armour.
In 2021, particularly in Q2, we saw the London The following underwriters were interviewed:
market return to a growth focus with new
capacity entering the market and many existing Chris Hicks
syndicates, which have had limited growth Underwriting Manager
targets over the past few years, now entering Marine Cargo - UK & Europe
growth mode following the market correction. Liberty Specialty Markets
LinkedIn
The new capacity established outside of Lloyd’s
does not have the restrictive parameters Lloyd’s
places on syndicates’ business plans, and the Chris McGill
enhanced growth appetites of existing syndicates Head of Marine Cargo
are allowing alternative options on risks, creating Cargo / Active Underwriter
certain competitive tensions in industries and Ascot Group / Syndicate 1796
more vertical limit and capacity to be placed LinkedIn
within the Cargo/STP market.
Though the market has been through a sustained Henry Maughan
period of correction, the previous 10 years of Head of Cargo & Specie
soft- market reductions in rate had left pricing Navium Marine Limited
threadbare in areas. As a result, we now find LinkedIn
ourselves in a “stable,” not “soft,” market.
Underwriting discipline and rating adequacy
continues to be a focus, but London insurers Jack Bryan
remain committed to supporting existing and Deputy Marine Cargo
new clients alike, ensuring they build insurance Underwriter
programs tailored to their needs. Tokio Marine HCC
LinkedIn
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 31The past couple of years have been challenging for cargo insurers.
Q:
Where does the cargo market find itself today?
Chris Hicks: The conversation for many capacity being offered. All in all, there seems
carriers has now moved from rate rise to to be a common purpose to achieve a long-
rate adequacy. This level will differ for each term, sustainable market that is relevant and
insured based on their own risk profile but capable of serving our clients’ needs for years
will also vary between carriers based on to come.
their data and risk appetite. While the pricing
environment for carriers has undoubtedly Henry Maughan: In my opinion, the cargo
improved, this was from an historically low market is in a more stable position than it was
base, and questions remain around whether 24 months ago, but I would not say that it will
pricing has increased enough to support be plain sailing from here on. There are still
the increase in loss trends and natural some headwinds that need to be addressed.
catastrophe activity that has occurred in the Having said that, the compound rate rises
last 10 years. we have seen over the past few years have
allowed underwriters to claw back some of
Jack Bryan: Today I believe the market finds the losses of the previous soft market.
itself in a much-improved position. A wave
of discipline has reached most corners of
the market, from realignment of appetite-
influencing risk selection, pricing which
now truly reflects industry sector, to client-
specific loss records with more intellectual
understanding and insight through actuarial
modelling of claim frequency and severity.
There is a better consideration of the future
and emerging risks of tomorrow. This is
occurring alongside concentrated efforts
on managing coverage relative to a client’s
needs and a focus on the bottom line,
whether that be linesize participation, gross
to net positions, or sensibility for the capital/
322021 would appear to have brought far more stability on rating and
Q:
coverages. What has been the driver of this?
Chris McGill: The market had shown There has been an influx of market entrants
signs of stabilizing in early 2021; however, in 2021 that seek to participate in a perceived
the influx of capacity and also existing healthy rating environment. I would add that
syndicates that had been dormant but technology in the industry has also had an
started to come back into growth mode effect. It demands more data to bring the
meant leader terms would mostly be desired efficiencies. This increased insight
completed without adjustments to terms. results in better underwriting decisions. It
could also be said that following the Lloyd’s
Jack Bryan: I think the urgency that was decile 10 performance review, not everybody
rightly applied to the market correction in was able to continue trading; there was a
the past years got much of the cargo market certain flight to quality.
portfolio to a pricing and coverage level
deemed adequate quite quickly, although it Henry Maughan: With so much remedial
was painful for all. I use the word “adequacy” work being done by underwriters in London
lightly, as the world is moving at an alarming since 2018, most portfolios are getting closer
pace both industrially and naturally, to “rating adequacy.” This has resulted in
where change and increased risk must be several companies and syndicates looking to
recognized, and today’s terms and conditions grow their premium base again. At the same
may soon become inadequate. time, there are several new entrants into the
market, and these are two of the factors that
There are many market dynamics that can are assisting brokers and clients in obtaining
influence the market’s current stability. Client more subdued rate rises for their 2021
retention must be considered. How many renewals. The capacity crunch we saw in 2019
years will a well-performing client accept and 2020 has seemed to have subsided as we
a material rate and potential cash rise in move through 2021.
premium without seeking alternative terms?
Market capacity drives the basic supply and
demand economics of a marketplace.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 33What significant losses have we seen in 2021, and how do
Q:
substantial industry losses affect your underwriting approach?
Chris McGill: 2021 has not been without sprinkler systems and basic COPE information.
large losses. Those that I’m aware of include Some losses are unavoidable, however, and this
$120 million of fire losses, $100 million of is where large limits and over-courageous lines in
misappropriation, several large GAs, and hindsight could be tempered.
containers lost overboard.
Ultimately, though, if there is a run on losses to a
Chris Hicks: The first half of 2021 has started specific industry, I’d look to continue writing the
poorly for many London cargo carriers with a next risk while addressing the current problems.
number of container ship incidents in the Pacific Ask each client how they are approaching this
and Suez Canal, flooding in Germany and China, element of risk. Is this client even exposed to
and wildfires in Southern Europe. In addition to that peril/issue? If so, I’ll share my approach with
this, the London cargo market has seen a number theirs and hopefully find a compromised position
of large-risk losses, such as arson from Durban to offer coverage at an acceptable set of terms.
SRCC, a pharmaceutical truck fire, commodity Examples in our market are misappropriation,
misappropriation in the UK, and a Japanese wildfire, processing of goods, vehicles in general,
warehouse fire. This loss activity is likely to push and transits of pharmaceuticals.
rating momentum upward and lead to more
significant correction in problematic sub classes. Henry Maughan: The cargo market continues
to see large losses affect several industries
Jack Bryan: Across the board, the increased and geographies. Large warehouse fires
limits being granted to a policy, which are usually in Asia and the US have impacted certain
(but not always) linked to stock exposure, seem to syndicates, and there is a worrying trend of new
have inflicted painful losses and hard lessons to misappropriation losses creeping into some
learn from. of the commodity accounts placed in London.
We are also seeing increased CAT losses again
I’d say the underwriter always has two tools at from flooding, wildfire, and hurricanes. All these
their disposal: risk selection and linesize. factors need to be remembered when we price
up our renewals, as the risks of CAT and large
We still need to get better at the detail with losses from individual accounts within our
greater understanding of the property factors portfolio remain acute.
that can contribute to a loss to the stock/
inventory. We have the same ability to assess
natural catastrophes as the non-marine market,
but building quality is often overlooked beyond
34With increased global supply chain pressures (large marine losses,
port congestion, container availability, etc.), what coverage is
Q:
available under a cargo/STP Insurance program that can support
clients facing these challenges?
Chris Hicks: Despite the tightening of coverage, multiple clients affected in a single maritime
a stock throughput policy (STP) still provides occurrence. The Ever Given highlighted this
end-to-end coverage and flexibility for clients recently even though there was minimal, if
to deal with disruption in the supply chain. any, physical loss or damage claims arising
Common policy extensions such as accumulation out of the incident. London is, however,
clauses and deviation clauses mean goods are ensuring that they are not deviating from its
protected if, through no fault of the assured, core principles of physical loss or damage.
goods accumulate at a port and breach the policy
For trade disruption insurance and delay, you’d
transit limits, or a vessel is unable to complete its
need to seek specialized markets. The pricing
intended voyage.
currently does not allow much margin for wider
The subscription market means brokers can terms or increased claims experience. Container
build far larger towers of coverage than may coverage became a sore point following the
be available from a single carrier. This flexibility Hanjin Shipping Co. insolvency. Extra expenses
has become advantageous in recent months as and the like have since been sublimited.
insureds have grappled with securing container Ultimately, we provide flexibility to match the
slots on vessels. We have begun to see a trend client’s agility to navigate these times with last-
of assureds shipping far larger numbers of minute warehouse, vessel, and routing changes.
containers onto single vessels in order to secure
space, and the market has responded with excess Henry Maughan: The flexibility that a
transit policies to cater to these increased limits. comprehensive cargo stock throughput can
give to a client can be a huge benefit when they
Jack Bryan: In short, a usual London STP will ship their goods across the globe. The seamless
cover all risks of physical loss and damage with coverage provided will give comfort that even in
named non-fortuitous exclusions. The capacity is the event of unforeseen delays or rerouting of a
still there to cover larger marine accumulations vessel, the cargo will remain covered for physical
both on vessel and at port. loss or damage. Sublimits for extra expenses can
also be purchased, and this can assist in clawing
The reinsurance market is also still intact
back some of the charges associated with supply
behind us, so I’d like to think London is the
chain disruption. Clients should be very clear with
most relevant and capable market in the world
their brokers on what their individual concerns
to provide comfort to clients in these times.
are so that bespoke coverages can be purchased
We are very much aware that we could have
that fit their needs.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 35Q: What is your prediction/outlook for 2022?
Chris McGill: Depending on what happens Henry Maughan: The market is definitely
for the remainder of the hurricane changing at a pace. I think the pressures of
season, I expect more predictability 2019 and 2020 resulted in most companies
and appetite for cargo business in keeping their heads below the parapet, but as
2022 for those writing profitably. the remedial work on portfolios starts to bear
fruit, new capacity is entering the market, and
Jack Bryan: So far, it would be prudent to several existing markets are looking to grow.
follow the trend of 2021 and continue the The next 12-24 months will see underwriters
positive momentum. We are in a mid-Atlantic focusing on their “best” clients and ensuring
hurricane season that is predicted to be more that the most profitable areas of their
active than usual, with Ida recently causing portfolios do not begin to shop around for
unprecedented flooding as far northeast alternatives. There is still work to be done
as New York City. Although different in certain areas, and I think price rises will
circumstances, there could be similar results continue for the more distressed classes of
to Hurricane Sandy for New Jersey and New business and areas of the world.
York, which incurred material losses to the
cargo market. This was meant to be a 1-in-250
event. It has been less than 10 years since.
Brutally, Ida was a direct hit on NOLA on
Katrina’s 16th anniversary, a 1/150 event. The
window of time is narrowing. Underwriters
need to factor this return period adjustment
to a sustainable model.
We will wait to see what the impact is and
if we truly are at pricing adequacy as more
storms form, more wildfires burn, and other
events unfold.
36There has been significant movement in both personnel and new
Q: capacity within the cargo market in London; how will this affect the
market going forward?
Chris McGill: The new capacity coming in is Jack Bryan: There are two types of new
all part of a functioning market cycle. It’s not capacity and two types of people moving.
unexpected; however, it does not necessarily Most of the time they are aligned.
come with the expertise required to lead
business or adjust claims. It does, however, There are existing and well-established
mean that more vertical limits and capacity Lloyd’s or global insurance carriers adding
can be placed in the STP market. cargo as a line of business with the intention
to add value. They intend to lead business
Chris Hicks: In recent months there has with claim-handling capability and by hiring
been an influx of capital into the London an established team, who have likely been
cargo market attracted by price increases. part of the major market accounts in the
Given the questions around the extent that past. The other is equally opportunistic with
the pandemic depressed loss patterns in their timing but happy to add capacity to the
2020 and the renewed large loss activity in market in a follow capacity. This is needed
2021, it may be that this is premature, and for brokers and clients at the moment to
it is unclear whether new capacity has an complete placements, but it shouldn’t get to a
understanding of the longer-term loss trends stage where it undermines the hard work of
in the market. the market in the past years to seek the goal
of long-term profitability and sustainability.
The impact of new capacity is likely to
be muted since it is predominantly set The lessons learned have been too hard,
up to follow established market leaders and to unravel them would be catastrophic.
and does not have the capability, data, The client always has the final say on what
or infrastructure to lead business. This security they have behind their balance sheet.
problem is compounded by the struggle Insurance is a product. Differentiators are
many new entrants have faced to find clarity, long-term partnership, durability, and
underwriters with the right skill sets claims payment. As the saying goes, “Buy
to build sustainable portfolios. cheap, buy twice.”
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 37Of the significant new capacity entering the London market this year,
a large portion of these carriers have entered the market without a
Q:
Lloyd’s vehicle; what are the advantages of this, and what are your
plans going forward?
Jack Bryan: The Lloyd’s decile 10 clamped Should the market turn again, I can be nimble
down on top line focus and really trimmed and act quickly through an internal business
a lot of business plans back until they were planning process if I were to write more
able to demonstrate profitable returns. through the company stamp.
In the period between a mass exodus of
capacity and showing positive returns, Henry Maughan: It is no secret that
there was missed opportunity. A large pot Lloyd’s has had its issues over the last
of clients caught in the crossfire, as well as few years. The draconian measures put in
misunderstood sectors, were struggling place during the decile 10 process did help
to find coverage. Those who did not solely correct the poor pricing in the market but
report to Lloyd’s had more flexibility with has hindered the entrepreneurial spirit
their capital and could continue to participate that Lloyd’s has traditionally been known
in profitable business with bigger shares at for. With costs and reporting pressures
higher prices. increasing, new capacity has looked to more
flexible options outside of Lloyd’s. Having
The gap in supply and demand was still so the ability to be nimble and react quickly
great that it became apparent that a two- to a changing market will hopefully allow
pronged approach would be advantageous to some of these new entrants to establish
a carrier. Lloyd’s has a suite of benefits, and themselves over the coming months and
being a Lloyd’s underwriter is something to years. At Navium we will be offering a
be proud of, but business is about being agile. viable alternative to more traditional cargo
Lloyd’s, at the time, prevented a lot of trading markets in Lloyd’s, and we will be focusing
ability and forced a more formulaic business on listening closely to clients’ individual
plan execution to achieve its performance needs and ensuring we provide first-class
targets. I personally look to write on both claims service on any contracts we lead.
securities, and it’s usually driven by the
client’s needs and licensing requirements.
38In the current market cycle, what are the advantages of being an
Q:
established syndicate and recognized leader?
Chris Hicks: When partnering with a Chris McGill: Having an established portfolio
carrier, insureds and brokers should and being a leader is always vital, but, at this
consider the reputation of the leader and stage, being a lead syndicate in my mind
their infrastructure, especially around has never been more important. Capacity
claims service. The ability to promptly pay can come and go from the market along
valid claims while supporting recovery with the cycle, but underwriting expertise
in the event of a loss is an essential and relationships with established leaders
element of selecting a carrier. will be constant. Those clients who stuck
with underwriters during soft and hard
The current market has demonstrated the markets always benefit over those who
value of insureds investing in relationships chop and change their carriers. Having an
with carriers and buying insurance for the existing portfolio means you don’t have to
long term. Our experience is that they have “write everything” and have the luxury of
been rewarded with more favorable terms appropriate risk selection, sticking to the
and conditions and a smoother renewal business you know and understand well.
experience as carriers transition changes
over multiple years.
P&C LOOKING AHEAD 2022 | WOODRUFF-SAWYER & CO. 39You can also read
