Public Entity Insurance Marketplace,
Trends, Industry Issues and Outlook
Presented by: Robert Lowe
Alliant Insurance Services
www.alliant.com
March 23rd, 2023
(THIS INFORMATION HAS BEEN CONSOLIDATED FROM VARIOUS INDUSTRY SOURCES) Market Pressures…
“While the industry balance sheet is strong enough to meet the commitments to insureds, it is facing emerging challenges from the significant and increasing impact of catastrophic weather events, cyber risk and significant price and social inflation/lawsuit abuse,” Robert Gordon, senior vice president of policy, research, and international for APCIA, said in a statement.
Pandemics &
Epidemics
Great
Resignation &
Quiet Quitting
Aging
Infrastructure Geo Political
Climate
Change Inflation Mass Shootings
Natural
Disasters
Supply Chain
& Labor
Shortage
Social Inflation
& Nuclear
Verdicts
Cyber Attacks Ukraine War Legislation
2 Impactful issues for insureds:
• Liability capacity pull back and withdrawals have been significant over the past two years • Property capacity reductions:
• 15% to 30% reduction in capacity from incumbents
• Coastal and wildfire capacity continues to be especially difficult • Cyber capacity is shrinking and particularly acute for certain industries (Public Entity) • Insurers produced negligible profit in 2022 – Expected $112b in Global Insured CAT losses in 2022 – 3rd Worst Loss Year on Record.
• Excess Workers Compensation remains stable, but retained layer may be experiencing increased claims volume.
• Historically low interest rates have hampered carrier investment returns. • An increased pattern of major property catastrophes such as hurricanes, typhoons, wildfires, winter storms and etc. over the past 5 years. Is this the new normal? • Consistent increases in attritional property losses (fires, water damage, tornados, hail, wildfires).
• Increased inflation has added to the issue of valuation across all property classes. • Social inflation & Litigation Financing driving up liability verdicts and settlements. • Ransomware cyber losses are systemic - $6 Trillion Impact in 2021 – Expecting $10 Trillion by 2025 – 2019 was $2 Trillion
Property
Excess Liability
Cyber
Market Conditions
3 Recent CAT Losses
4 Hurricanes Wildfires
Estimated $10B+
insured losses
Drought Flooding
Burned over
7,000,000 acres
$15B
in insured loss
Record-breaking 21
named storms in 2021
$45B+ in insured
losses (US ) IDA =
$30B Alone
2022 – KY Floods
37 deaths
$80b Economic Loss
– only $20b insured
50% of the Lower 48
States are in drought
2021 – More than
50 severe flood events
Over 100 deaths
associated
Tornado / Convective Storm
2021 1376 tornadoes in
the US compared to 1075
in 2020
299.9 Million
acres of crops in U.S. are
experiencing drought
conditions this week
120.2 Million
people in the U.S. are
affected by drought
this week
Hurricane Ian &
Nicole = $70B?
2021 wildfires
2022 = 7.5m acres
Winter Storms
Estimated $10B+
insured losses
Uri – 2021 Over 110
deaths associated
Estimated $20B+
insured losses
Estimated $5.4B+
insured losses
Elliott – 2022 Over
65 deaths associated
Largest Q1 loss record
5 Four Year CAT History: 66 $Billion+ Events
Source: NOAA
6 Major U.S Losses in 2021
Source: NOAA
Major U.S Losses in 2022
7 Increasing Impact on Liability Market
Reviver Legislation
Amendments
A rise in Sexual Abuse and
Molestation claims and
settlements
Reduced Capacity
reinsurer withdrawals
have been significant
over the past two years
Law Enforcement
Increased focus on policing
policy and procedures
as well as pressure on
Qualified Immunity
Litigation Financing
continues to drive large claims
and 68% of firms
are using it in 2021
Auto Liability
Frequency & Severity of
losses has returned to
pre COVID figures
Plaintiff Attorney Strategies
specialization and strategies
have evolved to get larger
verdicts and settlements.
Underwriter Scrutiny
reinsurers are seeking to
grow prudently and are
maintaining a disciplined,
conservative underwriter
approach.
Hyper Social Inflation
“A Texas jury awarded $300
billion to the family of a teen
and her grandmother, who
were killed in a 2017 crash
with a drunk driver.” This
type of verdict is meant to
send a message to others.
Inflation
Rising cost are increasing the
size of claims
Labor Shortage
everyone is doing
more with less
Exclusions
continued restrictions surrounding sexual abuse, Wildfire Exclusions, COVID, cyber, opioids and man made chemicals (PFAS – new focus)
8 9
Average Jury Awards, 1999 – 2020 (latest available)
Source: Jury Verdict Research; Current Award Trends in Personal Injury (61st Edition), Thomson Reuters; Risk and Uncertainty Management Center, Univ. of South Carolina. ($000)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $500
$1,000
$1,500
$2,000
$2,500
$3,000
$725
$747
$756
$800
$799
$1,018
$1,022
$950
$1,077
$1,046
$654
$806
$1,098
$1,010
$1,042
$1,135
$ 1,354
$1,813
$1,675
$1,758
$2,449
The average jury award reached an all-time record high
of $2.5M in 2020, up 39% from 2019 and 274% since 2010
Median Award in 2020 = $125,366
(a record)
10 Reinsurance Capacity Supply & Demand Imbalance
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022P 2022PF $600
$500
$400
$300
$200
$100
$0
$292 $320 $340 $332 $345 $345 $341
$394
$429
$475
$435
$19
$48
$60 $68 $75 $87 $95
$88
$90
$94
$95
$311
$368
$400 $400
$420 $432 $436
$482
$519
$569
$530
Total Dedicated Global Reinsurance Capital ($,B)
Traditional Capital Third-Party Capital
Reinsurance
Capital Supply Is
Expected To Be
Down $50B + At
YE:22
While Demand Is
Estimated To Be
Up $30B +.
Source: AM Best, Guy Carpenter; D&P Analysis. 2022PF = D&P estimates ?
North American
CAT Property
Reinsurance
Outlook
11 • Supply & Demand Imbalance • Investor fatigue from years of losses = No new entrants • Recent poor industry performance (unprofitable in 4 of last 5 years)
• Reduced capacity from incumbents “de-risking” book
• Rates on loss-free, Non-CAT business were up between 15% and 25%
• Rates on CAT-exposed and/or loss driven business were up between 45% and 100% • US renewals represented the most challenged end of that spectrum, with average rate-on-line increases of 50%
• Overall feedback on 1/1 treaty renewals was that most markets fared even worse than initially predicted with most renewals experiencing: • Significantly increased rates • Higher attachment points • Restricted terms/coverages • Reinsurers were and continue to be laser-focused on Insuranceto-Value and adequate replacement cost valuations, which had a knock-on effect to reductions in capacity offered as well as rate pressure
Initial Reinsurance Feedback
Cyber Renewal
Outlook
Leading insurers have indicated
“We may have hit rate equilibrium”
2023 Forecast:
• 15% to 25% increases, at a minimum, for
“good” risks and most starting much higher
• Lower overall capacity deployment
• Increased per-claim, self-insured retentions
for poor security posture
• Potential coinsurance percentages added for
ransomware
• Further reduction of ransomware limit
Requirement to evidence security posture:
• MFA
• Data Backups
• Endpoint Detection
• Employee Education & Training Programs
12 13
Market Trends Product Line Pricing Capacity Retentions Coverage
PROPERTY
Challenged Exposures
Non-Challenged Exposures
Builder’s Risk
CASUALTY
General Liability
Excess Liability
Automobile Liability
Workers’ Compensation
Umbrella Liability
MANAGEMENT & PROFESSIONAL
Cyber
Employment Practice Liability
Fiduciary
Fidelity/Crime
By Product Line
Arrow Key
What direction are pricing,
capacity, limits, deductibles
and coverages moving?
Color Key
As a buyer, is that movement
positive, neutral, or something
that could present a challenge
during my renewal? Decreasing
Increasing
Stabilizing / No change
Positive change
Neutral / No change
Potential Challenge