Hard Market Impacts 97% of Brokers | Cover Story
Amwins releases the 2023 Insurance Trends report, which showcases the challenges of the ongoing hard market as well as rising inflation.
Amwins surveyed 303 brokers and agents about the top insurance trends and found that 97% of respondents shared that hard market conditions are impacting their book of business. Other key findings of the report are:
- 95% of respondents said some portion of their clients were at risk of being underinsured due to high inflation in 2022.
- 61% of insureds are turning to increased risk management/contingency practices to help counter shrinking capacity.
- 71% of respondents said their clients’ average claim size has increased over the past 12 months.
- 82% of brokers and agents in the transportation space saw increased rates in the past 12 months – higher than most industries due to high rates of nuclear verdicts and social inflation.
- 75% of respondents said their clients have been impacted by shrinking capacity over the past few years.
The challenges of a hard market
2022 presented no shortage of challenges for insurance professionals and policyholders.
The ongoing hard market coupled with rising inflation contributed to both higher policy rates and claim sizes across industries. As a result, insureds have become more price sensitive and are turning to a wider range of carriers to minimize risk management — and cover more ground with fewer resources. To better understand these challenges, Amwins surveyed 303 brokers and agents about top insurance industry trends.
Our findings uncovered key strategies stakeholders deployed in 2022, as well as new opportunities for the year ahead. In today’s insurance environment, brokers and agents can play a more active role in educating clients on policy value, various coverage options and new opportunities. Insurers will also need to go the extra mile to help clients tap into a wider range of carriers as policyholders fight back against shrinking capacity and a difficult insurance market in 2023.
“In today’s insurance environment, brokers and agents can play a more active role in educating clients on policy value, various coverage options and new opportunities.”
INSIGHT 01: 2022 was a tough year for insurance players
The past few years have tested policyholders, and 2022 was more of the same with no end in sight. Many factors continued to pose challenges to policyholders’ businesses, but at the top of the list is the increased costs of materials and services.
Top challenges to clients’ businesses
1. Increased costs of materials/services 52% 2. Rising interest rates 26%
3. Supply chain disruptions 15%
Across the board, respondents said their clients are feeling the impacts of inflation, shrinking capacity and hard markets. Three-quarters of respondents (75%) said their clients have been impacted by shrinking capacity over the past few years.
Estimated fraction of clients impacted by shrinking capacity
− At least half of clients: 48%
− At least a quarter of clients: 89%
Unfortunately, capacity is unlikely to open up any time soon. Nearly all respondents (95%) shared that some portion of their clients were at risk of being underinsured due to high inflation in 2022, a reality that’s unlikely to change in 2023. And unsurprisingly, as insureds faced reduced budgets, agents and brokers saw their books of business shrink. Nearly all respondents (97%) shared that hard market conditions are impacting their current books of business.
Estimated fraction of clients at risk of underinsurance
− At least half of clients: 38%
− At least a quarter of clients: 75%
At the same time, claims are growing — again not surprising given a higher volume of catastrophic weather events. Almost three-fourths of respondents (71%) said their clients’ average claim size has increased over the past 12 months, with 16% saying claim size significantly increased. As severe weather shows no signs of abating in 2023, insurance brokers and agents should prepare for a continued rise in claim size over the next 12 months.
Agents and brokers who sell cyber liability (31%) and life sciences (e.g., cannabis) (36%) specialty insurance were more likely than average to say they’ve seen a significant increase in claim size over the past 12 months.
INSIGHT 02: A closer look at current insurance markets
Rising insurance rates are inescapable — the majority of respondents across all markets surveyed said rates have increased over the past 12 months. In most industries, roughly 10% of clients reported a rate change of more than 21%.
Industries where brokers and agents saw increased rates in the past 12 months
Given the high rate of nuclear verdicts and social inflation in the transportation space, it’s natural that transportation topped the list.
Top reasons clients’ average claim size has increased
1. Rising inflation 46%
2. Natural catastrophe losses 26%
3. Social inflation/nuclear verdicts 22%
Our research underscores how the continuing hard market is forcing insureds to look for opportunities to stretch their funds as far as possible, especially since economic climates aren’t improving.
For example, respondents said the No. 1 impact of the current hard market on their book of business is that “insureds are more price-sensitive, and more likely to choose the insurer that offers the lowest premium no matter what” (65%). Other impacts include accounts with towers becoming more difficult to fill (17%) and insureds changing their purchasing behaviors and buying less coverage (15%).
A deeper dive into the data uncovered another interesting trend: Respondents working with clients with a higher average premium size were more likely to have reduced exposure in areas affected by natural catastrophes in reaction to increases in claim size. They’re also more likely to have sought property assessments for accurate valuations and explored additional/alternative coverage options.
As price sensitivity continues to increase, brokers and agents should play a larger role in educating clients on the coverage limits of low- cost policies — and how to best balance current coverage needs with price considerations and other barriers.
INSIGHT 03: Insureds are fighting back
In the face of less-than-ideal insurance markets, policyholders are looking to course correct — and providers can help. Almost all respondents (98%) shared that their clients took some step(s) to counter shrinking capacity, with increased risk management/ contingency practices and higher premiums the most common measures.
Steps clients have taken to counter shrinking capacity
1. Increased risk management/contingency practices 61%
2. Paid higher premiums to secure coverage 56%
3. Utilized more carriers to fill layers 51%
4. Sought quotes from London/Bermuda markets 35%
When we break these numbers down by average premium size, we see clients with higher premium sizes are more likely to have utilized more carriers to fill layers and implemented self-insured retention, while clients with lower premium sizes tend to have paid higher premiums to secure coverage.
Almost all respondents (94%) also shared that their clients made moves to counterbalance increases in claim size. In particular, policyholders have sought to address the issue by accelerating proactive risk mitigation strategies and seeking out third-party support for more accurate valuations.
Steps clients have taken to counter increasing claim size
1. Increased proactive risk 61%
mitigation strategies
2. Sought property assessments 56% for accurate valuations
3. Explored additional/alternate coverage options Reduced exposure in areas 55%
4. affected by natural catastrophes (e.g., coastal properties) 45%
Clients have also explored specialty insurance options to protect themselves against specific types of risk and/or risks unique to their business or industry. While steps taken to counter increasing claim size and decreasing capacity were relatively consistent no matter what type of insurance respondents’ clients purchased, there were exceptions to the rule.
For example, agents and brokers who sell life sciences (e.g., cannabis) specialty insurance were significantly more likely to say their clients countered decreased capacity by utilizing more carriers to fill layers (86%), increasing risk management/ contingency practices (86%) or implementing self- insured retention (83%), compared to the average.
Top specialty insurance purchased through respondents’ companies
− Specialty casualty insurance (e.g., environmental and pollution exposure) 61%
– Professional liability/errors and omissions (E&O) 53%
− Management liability/directors and officers (D&O) 50%
− Specialty property insurance (e.g., hotels and casinos, power plants, etc.) 45%
− Employment practices liability (EPL) 45%
− Cyber liability 28%
− Life sciences (e.g., cannabis) 11%
CONCLUSIONS: Evolving with industry trends is key for a successful 2023
As markets tighten and policyholders are left with fewer attractive options in 2023, deriving greater value from their insurance partnerships will be a key strategy for companies to survive. In particular, with hard market conditions continuing this year, policy holders are looking for solutions that tap into a wider range of markets and carriers as they seek to balance value with price.
Insurance agents and brokers must rise to meet ongoing challenges both by leveraging broad risk management capabilities and tailoring solutions to their clients’ specific situations and resource levels. Those who remain responsive to clients’ evolving needs and trends in shifting insurance markets will be well-positioned to thrive in 2023.
ABOUT AMWINS
Amwins understands your clients’ businesses aren’t static — they’re complex and evolutionary in nature, and require future-focused insurance solutions that keep you a step ahead of risks. As a leading, global specialty insurance distributor, our unparalleled expertise spans 13 industry and risk specialty practices. Coupled with an extensive partnership network and granular analytics that drive every decision, Amwins uncovers the right insurance solutions for your clients — tackling today’s obstacles, and anticipating tomorrow’s challenges. Visit www.amwins.com for more.
