1. Inflation Is Changing the Game
After peaking at 9.1% in June 2022 following more than two years of pandemic-induced growth, global inflation has trended down slowly for the last few quarters. Still, inflation remains a concern across the entire Property and Casualty (P&C) value chain.
Naturally, rising costs will have a direct impact on insurers through increased claims costs and other expenses. In late 2022, McKinsey estimated that inflationary forces in 2021 added roughly $30 billion in loss costs to insurers' bottom lines, well above the long-term average.1
For Casualty as of 2023, inflation — combined with rising interest rates — has caused widespread disruption, from cuts on the binding side by carrier partners to new approaches to sales payroll for wholesalers.
2. Nuclear Verdicts Are Increasing
Jury verdicts in excess of $10 million — so-called "nuclear verdicts" — have been on the rise for more than a decade, and now impact nearly every industry covered by commercial insurance, including manufacturing, habitational, commercial construction and more. Any business with a potential for casualty coverage or injury is being affected by this trend toward large, financially destabilizing decisions.
Nuclear verdicts threaten not only corporate operations in a wide range of fields, but also their insurance premiums and the insurers behind those policies. After all, insuring a company against potential losses in the normal course of business is one thing. Insuring it against legal decisions that effectively have no ceiling on their value is a different matter entirely.
"These juries are more focused today on injuries and damages and not on liability," says Bill Wilkinson, president, RPS National Casualty Brokerage. "It used to be that, in the case of a claim, you would evaluate liability, look at what the insured did wrong versus what the claimant did wrong, and portion fault in a way that determines a reasonable settlement. With these verdicts, that just isn't happening."
3. New Technologies Are Affecting Claims
As recently as the 1970s, the UK had roughly 60 closed-circuit TV (CCTV) security cameras in use across the country. Today, that number is well over 6 million. It's the same in the US, where tens of millions of cameras were installed nationwide as of 2020.2 That number has only continued to climb with the increased usage of dash cams in cars, doorbell cameras in homes and overlapping security cameras at many businesses, often equipped with facial recognition technology.
This new reality is also changing the game for insurers.
More than a few insureds have been exonerated in many Casualty claims because of video evidence. The same can be said for slip-and-fall cases, apartment claims, personal injury and a wide range of other claims.
4. Capacity Continues to Drive Rates
Nearly 30 new, well-capitalized insurers have entered the Casualty market since 2020, bringing fresh capacity to the marketplace and helping to stabilize the rate environment in desirable classes of business like Commercial Construction and Manufacturing.
But things are starting to level off and become a little bit more consistent with rate increases. Two new entrants have failed in the last year, and expectations are that as many as 25% will fail over the next five years.
"As a broker, it's important for us to seek out new capacity, but frankly we know that some of these new entrants won't survive," says Wilkinson.
Learn more about what's next for the Casualty market in the RPS 2023 US Casualty Market Outlook.
Sources
1Javanmardian, Kia et al. Countering inflation: How US P&C Insurers Can Build Resilience," McKinsey & Company, 25 Aug 2022.
2Kwet, Michael."The Rise of the Video Surveillance Industrial Complex,"The Intercept, 27 Jan 2020.
