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3 Trends Creating Uncertainty in the Insurance Market, and Where Risk Managers Can Find Stability

Increasing loss frequency and severity – spurred by several global trends – has made finding affordable coverage more difficult. E&S may have the solutions companies need.
By: | November 2, 2020

This year, it seems that the only thing certain is uncertainty. The pandemic has thrown the world into a tailspin and left many companies hustling to adapt, often dramatically shifting their risk profiles in the process.

While COVID-19 undoubtedly occupies a large proportion of risk manager’s thoughts, it is not the only factor bringing volatility to the business landscape. The same trends driving a hardening insurance market over the past several years – namely, social inflation and increased natural catastrophe losses – continue unabated.

The convergence of these three factors has produced some instability in both property and casualty insurance markets. Carriers are seeking to make up for years of insufficient rate while limiting their exposure to these global risks. In some cases, carriers have exited challenging sectors altogether.

Insureds are left facing significantly higher premiums, limited capacity and curtailed terms and conditions at a time when they have an acute need for flexibility.

“Companies are finding it more difficult to obtain the capacity they need at a rate they can afford in the admitted marketplace, both for property and casualty risks,” said Tom Jurgens, Senior Vice President, E&S Brokerage Underwriting, Nationwide. “What they need now more than ever from the insurance market is stability.”

Here’s how three global trends are increasing insurance uncertainty for businesses, and where they can find the capacity and stability they’re looking for:

1. Social Inflation Will Keep Driving Up Casualty Loss Severity

Tom Jurgens, Senior Vice President, E&S Brokerage Underwriting, Nationwide

Insurers have sustained increased losses across multiple lines of liability as a result of social inflation. Juries have grown more sympathetic toward plaintiffs and more inclined to punish defendants – insurers and their clients – with verdicts out of proportion to the claim in question. This is a manifestation of growing public distrust of big business, enabled in courtrooms by the erasure of tort caps and legislative extensions on statutes of limitations in several states.

Though the pandemic has paused nuclear verdicts as cases were put on hold, Jurgens believes this trend will pick up right where it left off as courts reopen.

“Several states are enacting some type of immunity for pandemic-related losses, and claim frequency dropped when many businesses were forced to shut down, but I don’t foresee either factor having a long-term impact,” he said.

“Significantly large verdicts are happening across the board in the auto and liability space, and we have not seen any legislative or regulatory efforts to limit them. Once claim activity picks up again, I think we’ll continue to see those big numbers.”

Increased loss severity will continue to drive rising rates and capacity limitations, creating coverage challenges for risk managers in every industry.

2. Growing Catastrophe Losses Put Pressure on Property Underwriters

The number of annual natural catastrophes has risen steadily over the past 40 years, mostly due to greater frequency of convective storms and flooding events. Global insured losses from 2017 through 2019 totaled $144 billion, $86 billion and $52 billion, respectively.

This year, wildfires are a greater contributing factor to increasing property loss frequency and severity.

“The wildfires in California alone will result in losses anywhere from $5 billion to $8 billion, according to the latest industry estimates,” Jurgens said.

“These used to be infrequent events, but now it’s becoming an issue every year, so you’re seeing carriers manage their aggregation of risk in California and other Western States with wildfire exposure by cutting their capacity. We’ve seen significant withdrawals from not only E&S players but from the standard market as well,” he added.

Severe weather is also impacting geographical areas that historically were less exposed to events bringing high-winds, hail and excessive rainfall. The derecho that struck the Midwest in August is one example. This a hurricane-like event created wind speeds in excess of 100 miles per hour did significant damage to Nebraska, Illinois and Iowa in particular.

“With changing weather patterns, insurers will have to watch and account for whatever new catastrophic events come our way,” Jurgens said.

3. COVID-19 May Force Coverage Restrictions and Higher Rates

No two businesses have been affected by COVID-19 the same way. Invariably, though, companies had to pivot and adjust in unexpected ways to satisfy public health mandates as well as changing consumer demands. Doing so can have significant consequences from an insurance coverage perspective.

Higher education is one sector in the spotlight right now. Several colleges and universities have faced lawsuits over their coronavirus response – especially their decisions on reopening campuses and returning to live instruction. Retail and hospitality companies have also been forced to make tough calls in their effort to strike a balance between safety and profitability.

Other industries – like construction — have had a far more positive experience. The need to spend more time at home has driven a jump in home renovation projects. Some businesses have also taken advantage of forced shutdowns to complete delayed capital improvements.

“The effects of the changing economic landscape and the decisions that individual companies have made may not be realized for months or even years, and that uncertainty will likely contribute to the need for rate modifications and coverage adjustments,” Jurgens said.

“But at the same time, it will create new business opportunities that fit perfectly into the capabilities of the E&S market.”

A Source of Stability in Uncertain Times

Come renewal season, many companies could find themselves pushed out of the admitted market, either because of capacity or simply lack of coverage availability. The excess and surplus marketplace – always a home to new or complex risks – will be the next stop for these organizations.

Non-admitted insurers, though, are not immune from the uncertainty challenging the admitted market. The E&S insurers best able to meet customers’ changing needs will be those with a demonstrated devotion to underwriting expertise and discipline.

“A good underwriter needs to be aware of how macro changes are impacting the way they approach assuming risk,” Jurgens said. “At Nationwide, we continue to do our best to educate our underwriting teams on emerging societal, economic and litigation trends. We compile this data so our underwriting teams have the most relevant information available as they make individual account decisions.”

Some of that data comes from Nationwide’s wholesale distribution partners, with whom underwriters have cultivated strong and transparent relationships.

“Our broker partners let us know how their clients’ needs are changing, and we let them know how the market is responding. It’s a very open dialogue that ultimately results in better service and solutions for insureds,” Jurgens said.

Disciplined underwriting is another factor not to be overlooked when it comes to delivering stability. Nationwide’s E&S brokerage underwriting team comes with an average of 10 years of industry-specific experience. These are veterans who understand the complexity of the business and the value of specialization in crafting bespoke solutions.

This expertise, combined with strong relationships and a focus on innovation, is what makes any insurer a bastion of stability in uncertain times.

“The number one thing we hear from distribution partners is that they need capacity and stability and the reason they continue to do business with us is because we bring that to the table consistently,” Jurgens said.

To learn more about Nationwide E&S Brokerage offerings, visit nationwide.com/brokers.

About Nationwide
A.M. Best Rated A+ XV | S&P A+ | Fortune 100 Company
Products underwritten by Nationwide Mutual Insurance Company and Affiliated Companies. Not all Nationwide affiliated companies are mutual companies, and not all Nationwide members are insured by a mutual company. Home Office: One Nationwide Plaza, Columbus, OH. Nationwide, the Nationwide N and Eagle, and other marks displayed on this page are service marks of Nationwide Mutual Insurance Company, unless otherwise disclosed. © 2020 Nationwide Mutual Insurance Company.




This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Nationwide. The editorial staff of Risk & Insurance had no role in its preparation.

Nationwide, a Fortune 100 company, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s.

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