Commercial Property Rates Not Expected to Increase at Same Pace as 2023: USI

A new USI Insurance Services report forecasts that in 2024, commercial property insurance rates “are expected to increase, but not at the same pace as seen in 2023.”

“Our forecast calls for 5% to 15% rate increases for non-catastrophe property with minimal loss history and good risk quality; 15% to 30%+ for CAT-exposed property with minimal loss history and good risk quality; and 15% to 30%+ rate increases for those risks with poor loss history or poor risk quality,” said the company’s 2024 Commercial Property and Casualty Market Outlook.

The report, which showcases forecast insights from USI national practice leaders, said that the higher end of the ranges above are reserved for risks with a large concentration in values in critical CAT zones; insureds facing non-renewals by incumbent insurers; insureds with unresolved risk quality issues; or insureds with large, unsettled claims.

“We expect the majority of renewals to finish with less than a 20% rate increase, but insureds that fall into one of the categories above could experience a higher result as outlined,” the report continued.

By comparison, USI shared that year-over-year, CAT property with minimal loss history and good risk quality was up between 25% and 150% in 2023, and CAT or non-CAT property with poor loss history or poor risk quality was up by the same percentages.

More moderate price increases for reinsurance treaties, decelerated inflationary pressure and positioning by insurers to minimize CAT losses “point to a property insurance market better poised to handle the projected loss forecasts, so long as underwriting discipline prevails in the long term,” said the USI report.

According to the Swiss Re Institute, since 1992, the average annual growth trend of global natural catastrophe insured losses has been 5-7%. The Institute projected in March 2023 that, regardless of year-on-year volatility, “insured losses will continue to grow at trend, even when amplifiers such as inflation wane.”

As the property insurance market adjusts to increased CAT losses, shifting insurer appetites and a more selective deployment of capacity, USI also foresees:

• Less volatility in replacement cost indices as inflation eases.
• Growth of the surplus lines market.
• Increased interest in alternative risk transfer.
• An increased role of technology and artificial intelligence in underwriting decisions.
• Updated CAT models are expected to impact segments of the market.

USI projects flat to 5% rate increases in the general liability and product liability markets, noting that many organizations continue to switch to loss-sensitive programs despite rate moderation to further reduce their cost of risk.

In the auto insurance sphere, USI reports that “virtually all providers of auto liability insurance continue to push for rate increases,” adding that while “new capacity continues to enter via telematics programs, traditional insurers have reduced capacity by exiting certain underperforming states.”

More report highlights can be found below.

Umbrella/Excess: USI projects that rate increases will be limited to 5% to 15%, and markets will offer increased limits of $15 million to $25 million.

Workers’ Compensation: The report said the workers’ compensation rate and pricing environment in most states should continue to remain competitive in 2024 for both buyers of guaranteed cost and loss-sensitive programs, with rate reductions being more common than rate increases.

Cyber: USI found that ransomware and business email compromises are becoming more interconnected as attackers can use compromised email accounts to initiate ransomware attacks, making the cyber threat landscape even more perilous. Rates have been stable, though, with renewals flat to up 15%. USI expects rates to remain the same in 2024.

Directors and Officers: The report projects that public company D&O rates will be flat to down 7.5% in the first half of 2024.