Opportunities in today’s US commercial insurance market

Albert Einstein once said: “In the middle of every difficulty lies opportunity.” More than likely, he was not talking about the commercial insurance industry, but he could have been.

A global pandemic and recording-breaking losses from natural catastrophes certainly posed some difficulties for the US commercial insurance market in 2020 and continuing into 2021. These challenges have, however, come with ample opportunities for the commercial insurance market to demonstrate the benefits of strong risk management partnerships in addressing current business challenges and whatever lies ahead.

While the pandemic may have interrupted business activities, it had little effect in slowing the severe weather events which ripped through 2020 with a vengeance. In 2020, there were a record 30 named storms. Twelve of those made landfall in the US – setting another weather record -- and cost the insurance industry $21bn in claims. Other weather events added to the loss tally too. In fact, for the US insurance market, 2020 was the most expensive year of losses ever for severe weather. According to NOAA, there were 22 separate billion-dollar weather and climate disasters across the US, shattering the previous annual record of 16 events, which occurred in 2017 and 2011, and resulting in a combined $95bn in damages.

From natural catastrophes and commercial auto liability, and other high-loss events, years of back-to-back losses have prompted the commercial insurance market to correct itself, adjusting rates more in line with the risks it was assuming. On the surface, rising insurance rates might not seem like an opportunity, especially for clients. However, in the long run, fair and adequate insurance rates, based on historical experience, loss, and now a growing plethora of other data, allow the insurance industry an opportunity to continue to insure even the most challenging business risks. And after a look at some of the market forces pushing insurance rates higher, most will understand why.

According to the most recent Willis Towers Watson (WTW) Commercial Lines Insurance Pricing Survey (CLIPS), US commercial insurance prices again grew significantly in the fourth quarter of 2020. When comparing prices charged on policies underwritten during the fourth quarter of 2020 against coverage underwritten in 2019, the survey found the aggregate commercial price change reported by carriers was above 10%, the highest increase in the history of WTW’s survey.

There are some indications that it is easing up a bit. According to the latest data from MarketScout, commercial rates were up 7% on average in the first quarter of 2021.

Here are more reasons why we’re continuing to see these increases:

• Cyber: First, adhering to privacy laws such as GDPR and CCPA, the California Consumer Privacy Act was driving businesses' interest in cyber insurance protection. Now, especially with many employees working remotely, increases in costly cybercrimes are having a significant impact on cyber coverage pricing and capacity.

• D&O: The pandemic hasn’t slowed down securities class action settlements. A recent Cornerstone report found that plaintiffs filed 334 new securities class action cases in federal and state courts in 2020, compared to a record 427 filings in 2019. Settlements, however, saw no declines. Courts approved 77 settlements totaling $4.2bn in 2020, compared to 74 settlements totaling $2.1bn the previous year.

• Commercial Property: As previously mentioned, 2020 was a very active year as far as hurricanes and other weather events. The insurance market also saw civil disobedience losses from property damage caused by riots in late May and early June. These losses weren’t a 2020 fluke. As mentioned earlier, we’ve seen heavy back-to-back weather losses. Hence, that’s why commercial property insurance pricing in the US has increased every month since October 2017.

• Casualty: Increase in severity of commercial auto claims continue to impact excess casualty lines of business, especially the lead umbrella space. As a result, many commercial carriers have pulled back on their capacity. For companies requiring significant limits of liability - to protect themselves against product liability risks, for example - they must tap into many more insurance carriers to build up a tower of coverage. In the past, businesses may have had four carriers support their casualty program. Now, they may require eight or more.

Hefty price tags associated with many of these cyber, D&O, property and casualty losses are why many businesses prefer not to do it alone. While double-digit rate increases have been difficult to swallow at times, a six- or seven-digit loss would be more than difficult; it would be devastating. And, of course, that’s why the insurance market has had to take corrective pricing actions to assure its long-term sustainability and commitment to assuming clients’ risks.

Insurers, brokers, and clients are taking the time to work together to better handle the cost of risk.

That is why, even during a pandemic, AXA XL took a bold step to reorganize and implement a new organizational structure intent of helping us serve our clients more efficiently, more holistically, more personally.

The US is the largest commercial insurance market in the world. And geographically, there is a lot of ground to cover. To help us focus our expertise, we adopted a Zone structure, designating multi-line insurance teams in each region of the country – East, Central, and West - to work closely with brokers and clients and address their risk management needs across their operations across multiple lines of insurance coverage. Brokers and clients have been receptive to our new Zone approach, giving them easy access to a dedicated multi-line underwriting team.

Thanks to technology, our Zone teams have been able to 'meet up' regularly with brokers and clients – maybe even more frequently than when travel was involved. Quick adoption and acclimation to Zoom, Microsoft Teams, and other communications technologies helped us stay connected.

For many, the pandemic was the impetus for a lot more tech adoption. We have long seen the value in new technologies to help reduce risks. The challenge has always been to find the most appropriate tech solution from the growing selection of new technologies. That’s why as part of the development of our Construction Ecosystem and its Tech Library, our North America Construction team worked closely with clients to determine their needs and vet new tech solutions that worked for them. It turned out that during a pandemic and very active year of weather, it was a particularly opportune time to roll out some 40 technologies that our clients engage in protecting their operations.

Our clients are also benefitting from our use of more technology. This year, we also entered into a multi-year partnership and licensing agreement with Xtract. With Xtract, we’re looking to digitize, expedite and transform our commercial auto claims management process in the US. Xtract’s technology allows our claims team to gather and evaluate all data – including real-time data quickly - that is available after an incident. (Read more in Using Technology to Solve the Biggest Problems in Commercial Auto Claims Management.)

While we don’t have a crystal ball, we certainly have a lot of data. New technology solutions like Xtract allow us to collect and access data quicker than ever before. Being able to harness and use the insights that all this data has to offer has never been more critical in supporting underwriting decisions, claims management, investment management, and so much more.

In the past, insurers could only analyze recent loss experiences to anticipate future claims. New technologies are helping us use more available data and use it in all parts of our operations. Data analytics is helping us better understand the needs of our consumers, track trends, and make more informed decisions on claims, pricing, and more.

Especially under today’s challenging market conditions and whatever the future brings, employing more data and analytics will help us gain a much better view of how significant the risks are to clients’ businesses, how best to price those risks, and how to mitigate them to avoid or at least minimize financial losses.

Despite the difficulties, the year offered ample opportunities for commercial insurers, like AXA XL, to extend their expertise to help clients address problems few saw coming. We jumped on the chance to help clients adjust and carry on from risks associated with remote working to supply chain disruptions to COVID workplace protocols. More of our clients took advantage of more than the insurance coverage we provide. We worked more closely together to address the new risks and operational challenges that accompanied the pandemic.

In 2021, the US commercial insurance market is as dynamic as ever. New business risks emerge constantly. From climate to claims trends, many forces will continue to put pressure on insurance coverage and rates. In the middle of it all, there will be plenty of opportunities to work together to manage risk successfully. It's up to all of us – insurers, brokers, and clients - to make the most of them.