Inflation Is Primary Factor in Premium Increases: CIAB

Market conditions remained difficult in the third quarter of 2022, with respondents reporting an average premium increase of 8.1% across all account sizes, up from 7.1% in the second quarter.

Source: CIAB | Published on November 22, 2022

premium increases

Market conditions remained difficult in the third quarter of 2022, with respondents reporting an average premium increase of 8.1% across all account sizes, up from 7.1% in the second quarter. Despite the fact that this was the 20th consecutive quarter of premium increases, respondents acknowledged that the increases were relatively minor, describing them as “close to flat.”

With a few exceptions, premium pricing remained moderate in most lines of business. Premiums for commercial property, for example, increased by an average of 11.2% in Q3 2022, compared to 8.3% in Q2. Commercial auto and cyber both increased by 7.6% and 20.3%, respectively.

Workers’ compensation premiums fell 0.7% in the third quarter. Respondents described the line’s underwriting as “flexible” and “loose,” and stated that it was “still very soft.”

Respondents cited inflation as one of the primary causes of commercial property and commercial auto woes, owing to its impact on the cost of goods. Increased construction and replacement costs led to underwriters requiring higher property valuations when writing or renewing coverage, putting upward pressure on premiums to cover the increased exposure from the property’s increased value. Similarly, rising repair and replacement costs contributed to higher auto claims and higher premiums to compensate for those losses.

Natural disasters, such as Hurricane Ian or flooding in Kentucky and Tennessee, also contributed to increases in commercial property premiums. Respondents cited significant rate increases, capacity restrictions, and higher deductibles for properties vulnerable to natural disasters, as well as lower limits.

Cyber was also a challenge for brokers in Q3 2022, though the average premium increase for the line this quarter was 20.3%, a significant decrease from the previous quarter’s 26.8% and a significant decrease from the line’s record high peak of 34.3% in Q4 2021. Some brokers believed premiums for the line had stabilized slightly, particularly if insureds implemented appropriate risk controls. Even if the account had a clean loss history, clear issues remained, such as higher deductibles and the addition of sublimits to ransomware and cyber extortion coverages.

Respondents believed that current market conditions would enable them to demonstrate their worth to clients. “Helping to educate clients on the overall market, risk mitigation techniques, and emerging market risks will be critical to client retention,” according to one respondent from a midsized Midwestern firm. “If you can’t offer a client services and tools to help them make risk improvements in their business, you will be relegated to being just another vendor who can give them a policy,” said a third respondent from a large Midwestern firm.