Q1 Automobile Summary
Overall (Moderate)
The marketplace has moderated somewhat with respect to Auto Liability; however, unfortunately, 2021 saw the highest level of Auto fatalities in decades despite fewer vehicles on the road. Severe verdicts continued.
Pricing (+1-10%)
Most Auto risk transfer premium rates increased in the mid to high single digits, the amount of which depended on loss experience, and the level of risk retained through deductibles or self insurance.
Capacity (Ample) Most primary insurers can support primary risk transfer for Auto but have chosen to deploy net capacity of USD 2M or less. Depending upon the level of the Primary layer limits and the Umbrella / Excess attachment point, there is a growing trend to use Auto buffer layer insurance including structured products.
Underwriting (Prudent) Underwriters continued to seek more and more information on vehicle safety technologies deployed, driver training, MVR checks, and hiring / employee turnover.
Limits (Flat) Most primary limits remained stable.
Deductibles (Flat) Most clients have chosen to maintain the same retention levels, and expiring retention levels can be achieved in most cases.
Coverages (Stable) Primary Auto Liability coverage is highly regulated under statutes so there are few differences between carrier coverage grants.
A Look Ahead (Moderate) The market is expected to remain stable but with moderate upward pressure due to continued increases in average claim severity. With traffic returning to pre-pandemic levels and economic activity increasing, the market will be watching carefully to see how accident frequency trends per miles driven compare to pre-pandemic levels.
Q1 Cyber Summary
Overall (Challenging)
Along with continued rate pressure, in Q1, insurers increased retentions and limited coverage based on underwriting information and legacy program structure.
Pricing (>+30%)
The rate environment hardened throughout 2021 primarily due to ransomware related losses and concerns regarding systemic, correlated risks, with the largest adjustments taking place in H2 2021. Rate increases continued into 2022 with targets varying based on class of business, client segment, loss trends, and prior rate adjustments. There has been heightened pressure on Excess layers as insurers focused on increased limit factors (ILFs) when offering quotes. The minimum ILF was typically around 80% to 90%.
Capacity (Constrained) Insurers continued to tighten their management of global aggregate capacity as they did throughout 2021. Class of business, attachment point, and cybersecurity control posture were all factors in determining capacity deployment. A limited number of insurers exited the market due to loss history in 2021. While new capacity is expected to enter the market in 2022, it is unlikely that this will amount to a net gain in the total available global capacity for Cyber insurance in 2022. To assist clients in obtaining desired limits and to help offset lost capacity, Aon has been working with clients to deploy alternative risk transfer strategies such as captives, fronted arrangements, or increasing self-insured portions of programs.
Underwriting (Rigorous) Insurers remained hyper-focused on underwriting to ransomware controls. If the required underwriting information was not adequate, then ransomware related coverage was not offered, or if it was offered it was sub-limited and/or co-insured. Insurers continued to ask a significant number of questions around insureds' cyber exposures in Russia, Ukraine and Belarus
Limits (Decreased) Overall limits continued to decrease due to market capacity limitations and rising insurance premiums.
Deductibles (Increased) Most placements – especially those in the middle market space - continued to experience retention increases and longer waiting periods for business interruption/systems failure. Sub-limits and/or co-insurance were required for dependent business interruption/systems failure.
Coverages (More Restrictive) Insurers continue to scrutinize the coverage offered for critical infrastructure, systemic, correlated events, with certain insurers restricting coverage on either a generalized or event specific (e.g. Log4j) basis. Insurers are closely monitoring the geopolitical environment with specific concerns related to the potential increase in Cyber claims related to geopolitical events in Eastern Europe. As a result, insurers are reviewing and potentially amending their war, sanctions and territory coverage conditions. Some insurers are removing non-core Cyber coverages (full media, cyber crime and previously sub-limited coverages). Excess insurers are reviewing all sub-limits, regardless of attachment, with many no longer offering followed/drop down coverage when the underlying limit for these coverages has been eroded.
A Look Ahead (Challenging) Insurers are closely monitoring the geopolitical environment with specific concerns related to the potential increase in cyber claims related to geopolitical events in Eastern Europe. Insurers will continue to scrutinize the coverage offered for critical infrastructure, systemic, correlated events, with some insurers restricting coverage on either a generalized or event specific basis. The environment is impacted by the enforcement of regulatory statues and increasing regulatory governance globally.
Q1 Employers Liability/Workers Compensation Summary
Overall (Soft)
Market competition has been aggressive as this is one of the most profitable lines in the US Commercial P&C insurance industry. Insurers offered creative and customized approaches to collateral and leveraged other techniques designed to attract new clients.
Pricing (Flat)
Q1 pricing, on average, was nearly flat, but the rate outcomes range was between +/- 5%. The amount of client payroll growth or shrinkage was a major factor as it has been inversely correlated to insurer rate activity as insurers remain focused on preserving and growing premium levels.
Capacity (Abundant) There were more insurers competing for large client Workers' Compensation programs than ever before.
Underwriting (Flexible) Underwriting remained flexible and accommodating as insurers competed aggressively for business. The underwriting of large deductible Workers’ Compensation placements was dependent on payroll amounts, loss activity and deductible levels. The type of occupancy or work performed was less relevant but did influence capacity for more difficult classes.
Limits (Flat) Workers' Compensation limits are almost exclusively prescribed by statute. In limited cases, Employers Liability limits increased if required by the Umbrella / Excess Casualty market.
Deductibles (Flat) Expiring deductibles were achieved in most cases.
Coverages (Stable) Workers' Compensation coverage is highly regulated under state laws so there is very little if any variation between insurer coverage forms. Employers' Liability coverage is somewhat more flexible. During the pandemic, most insurers eliminated caps for multiple employees impacted by a communicable disease event. In Q1, most placements renewed with expiring coverages across both Workers’ Compensation and Employers’ Liability.
A Look Ahead (Soft) Insurers are expected to become even more aggressive, deploying exceptional creativity around collateral, multiyear pricing guarantees, and offering other incentives aimed at growing and retaining their portfolio.
Q1 Casualty/Liability Summary
Overall (Moderate)
The market for Primary and Excess Liability coverage has continued to moderate from the challenging conditions in 2020 and first half of 2021. There were exceptions where the market remained challenging such as risks with greater exposure to forest fires or other climate change risks, very large vehicle fleets, severe loss experience and risks purchasing very high limits.
Pricing (+1-10%)
Average rate increases have been in the mid single digits, however, there was greater volatility in results, which ranged from rate decreases to very severe rate increases. Risk differentiation has become more important than ever.
Capacity (Ample) There was sufficient marketplace capacity for the majority of client needs, although very high vertical limits remained difficult to place at competitive pricing and coverage levels.
Underwriting (Rigorous) Underwriting scrutiny and rigor continued to increase. Risks with extensive underwriting information – especially those with differentiated risk management and safety program details – tended to experience superior results. Primary underwriters were more aggressive and creative with collateral solutions than in prior years.
Limits (Flat) While most placements renewed with expiring limits, some clients have chosen to increase their limits to adjust for limit reductions that took place in 2020 and 2021 when the market was at its most difficult or to address growing exposures.
Deductibles (Flat) Expiring deductibles were achieved in most cases.
Coverages (Stable) As the market has become more competitive, coverage grants have become an important area of differentiation for insurers and reinsurers, with meaningful differences in outcomes for areas such as Communicable Disease and pandemic risks.
A Look Ahead (Moderate) A continued moderation of the market is expected for most risks, with more individualized client results aligning with the level of exposure growth or decline, loss activity, specific risks, and risk controls in place including contractual risk management as well as safety initiatives.
Q1 Directors and Officers Summary
Overall (Moderate)
Market conditions remained moderate as new capacity continued to enter the D&O market, creating competition, especially in Excess layers. Minimum Increased Limit Factors continued to decrease.
Pricing (+1-10%)
Price increases have moderated but the market remains challenged for newly public companies (via IPO/de-SPAC) and those in difficult industries. Primary placements continued to experience modest increases while Excess layers experienced more competition due to the increased supply of capacity along with increased flexibility from incumbent insurers.
Capacity (Ample) New capacity continued to enter the D&O market, strengthening the competitive dynamics. Insurers remained disciplined about capital deployment and there was muted appetite for large limits on any layer.
Underwriting (Prudent) The practice of “book underwriting” has given way to risk-specific underwriting, and risk differentiation is key. Thoughtful planning and investment in underwriter meetings is leading to more successful placement outcomes.
Limits (Flat) Expiring limits can be achieved in most cases; additional limits are available.
Deductibles (Flat) Expiring deductibles can be achieved in most cases.
Coverages (Stable) Broad coverage terms can be achieved in most cases, and insurers are demonstrating flexibility in areas where coverage and limit restrictions had been applied (e.g., derivative investigation costs). Some territory restrictions have been imposed due to the events in Eastern Europe.
A Look Ahead (Moderate) Competitive dynamics are expected to continue to strengthen. Insurers are expected to remain disciplined about capital deployment and to closely monitor results and profitability. Some sectors are expected to remain challenged: De-SPAC, Crypto, Cannabis, Electric Vehicle and recovering COVID-impacted industries (particularly related to supply chain challenges). The de-SPAC litigation landscape is immature and may impact the insurance market as it develops. Underwriters are developing questions relating to ESG in effort to understand companies’ place in the maturity curve and plans for achieving disclosed targets.
Q1 Property Summary
Overall (Moderate)
Property coverage is underwritten on a case-by-case basis depending upon exposure, occupancy and loss history. Risks with limited catastrophe exposure and loss ratios below 25% achieved the most favorable placement results.
Pricing (+1-10%)
Shared and layered placements trended higher in Q1 than in Q4 due to the complex and catastrophe-prone challenges of shared and layered placements including challenges with retraction in the E&S market. Single insurer placements have moderated with an average rate lower than the last two quarters.
Capacity (Ample) The E&S US Property market has contracted for some occupancies. While new capacity has been slow to develop, retail insurers have generally been able to fill the void with expanded capacity.
Underwriting (Prudent) Underwriters have been very cautious around property valuation given inflationary trends and market losses that have been higher than reported values. Clients need to be prepared to explain their process around property value collection to avoid valuation coverage restrictions.
Limits (Flat) Overall program limits and sub-limits were stable.
Deductibles (Flat) Expiring deductibles were achieved in most cases; however, some underwriters proposed hail deductibles in US states prone to severe convective storm activity.
Coverages (Stable) Indirect physical damage coverage such as Contingent Business Interruption, Ingress/Egress and Civil and Military Authority continued to be an area of underwriter interest given supply chain constraints.
A Look Ahead (Moderate) Q2 is an impactful quarter given the significant amount of catastrophe exposed programs that renew prior to the North Atlantic hurricane season. Given limited new capacity in the market, some retraction on the part of US E&S markets, and the number of catastrophe-prone risks renewing in the market there may be some rate pressure.
Q1 Trade Credit Summary
Overall (Soft)
With loss ratios for 2020 and 2021 below historical benchmarks, the soft market trend continued in Q1 as a new insurer entered this space and existing insurers expanded their appetites and product offerings. The US marketplace is not as susceptible to the impacts of the geopolitical events in Eastern Europe as some other markets.
Pricing (Down)
Significant competition and favorable loss ratios continued to drive a competitive pricing environment, with most placements experiencing single-digit reductions.
Capacity (Abundant) With a new market entrant, and significant capacity appetite increases from existing insurers, overall market capacity has increased materially year-over-year.
Underwriting (Flexible) Increased market competition drove greater flexibility on policy wordings and coverage terms.
Limits (Increased) Inflation is impacting customer credit needs, which in Q1 led to an increase in insurance limits.
Deductibles (Decreased) Loss ratios for 2020 and 2021 were below expectations and historical averages, which created an environment in Q1 that was favorable for deductible decreases.
Coverages (Broader) Insurers continued to broaden coverage terms in an effort to compete for business.
A Look Ahead (Soft) Further appetite and capacity expansions, along with rate reductions, are expected. The impact from the geopolitical events in Eastern Europe is expected to have a greater impact on Euro-centric credit insurers, and less impact on traditional multi-line credit insurers.
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