The primary casualty market is hardening and facing new challenges and opportunities in the wake of COVID-19, said Rebecca Gitig, head of US Primary Liability for Aspen. Gitig recently spoke with Insider Engage’s Meg Green. Click on the video, below, or read on to see an edited transcript of the interview.
MG: Could you give us an overview of the primary liability market today?
RG: Sure, the short answer is the market is firm, but it's not as firm as it was this time last year. I want to be clear that we're not seeing rate decreases by any means. Rates are still positive, and we're still seeing tighter terms and conditions for specific classes of business. But we are experiencing decelerating rate increases for some of the more profitable classes. And there are a few reasons why: one being the compound effect of rate increases over the last few years. At some point, they just have to level off. Another being that as underwriting results improve, some of the standard markets are entertaining classes of business they previously exited. Also, there's been an influx of opportunistic new entrants into the primary E&S and GL space, seeking to exploit the market by picking and choosing the most profitable classes of business. So, while there's still positive early rate momentum for the higher hazard risks, we see the market is stabilizing.
MG: How has the COVID-19 pandemic impacted the market?
RG: The market was already hard and then COVID emerged. This created additional challenges, but also some opportunities for some of the risks we see. Take hospitality for example: the hospitality industry was completely devastated by COVID and many hotels, restaurants, bars and taverns closed and actually may never reopen. We saw significant decrease in exposures and resulting premiums during the height of the pandemic.
But there were also numerous examples of businesses who pivoted their operations to ensure short-term survival. Some hotels were used to temporarily house COVID patients while they quarantined. We also saw some hotels used to house displaced persons to get them off the street or out of homeless encampments, and to quell the spread of the pandemic. This is a much different exposure than a three or four star hotel and resulted in very restrictive terms and conditions and higher pricing.
We also just looked at a former nightclub operation, and nightclubs tend to range on the higher end of exposure. Because of COVID, they were shut down, and they converted their operation to more family-friendly and outdoor-centric daytime operation, shifting the focus from nighttime consumption to daytime consumption and dramatically improving the risk profile. What was previously somewhat of an undesirable risk became a risk very much worth writing.
We had another insured who operated a concept restaurant; they had a winery within their restaurant. Because of COVID they were closed, and they shifted to a wine delivery model. This helps decrease their premises exposures pretty dramatically, but it presents other challenges related to a more delivery-based operation.
MG: And a shift like that you'd have to re-examine the policy?
RG: Yes, you'd have to re-examine the policy to understand the new exposures and price accordingly.
MG: What do you see is the big implications of the new $1.2 trillion infrastructure bill?
I predict you will see insurance companies measuring the risk against the sustainability and ethical impact of each project and choosing to partner with insurers and projects that support their company's ESG initiatives.
RG: We anticipate a significant number of opportunities related to the bill, specifically in the construction market. Infrastructure, from a construction standpoint, has always been a very tough class of business. Now we have increased exposures as well as inflation. It's driving the cost of construction up and will result in higher premiums to place insurance programs to support the projects. I predict you will see insurance companies measuring the risk against the sustainability and ethical impact of each project and choosing to partner with insurers and projects that support their company's ESG initiatives. I think it's going to really be incumbent upon the experienced carriers to be flexible with these new projects, but also responsible at the same time.
MG: And what do you expect to see going forward into 2022?
RG: As far as rates go, social inflation, nuclear jury verdicts and deteriorating loss trends are expected to continue, as well as the continued uncertainty created by the pandemic. So we expect the market to continue tightening in 2022, but at a slower pace. And as far as growth goes, we will see a boom in the construction and hospitality markets. There's a backlog of delayed construction projects starting up, in addition to the opportunities created by the infrastructure bill. As businesses reopen after the pandemic and operate in a more normal environment, we expect new exposures to emerge, as well as a positive impact on audit premiums.
