The report, which was released today, highlights the forces that contributed to the hard market, such as systemic increases in risk from increased catastrophe losses likely caused by climate change, "social inflation," and rising exposures in areas ranging from cyber to liability, which have not subsided.
While Willis Towers Watson predicts market moderation, two exceptions to the general trend are cyber liability and fiduciary liability insurance. Rates in these categories have been rising sharply, and in the case of cyber, the report predicts even steeper increases in 2022.
"For the most part, we're heading toward stability as we observe the workings of a simple economic law — supply and demand," said Jon Drummond, senior editor, Insurance Marketplace Realities and head of Broking, North America at Willis Towers Watson. "This does not, however, imply that this is a simple marketplace." The two-tiered marketplace we discussed in our previous issue is still a reality in many lines of business; conditions are better for better risks and tougher — sometimes much tougher — for less attractive risks."
According to the report, the risk manager's job of distinguishing his or her organization's risks in the marketplace is more difficult than ever. More and better data are needed and expected, and the information must be presented in a clear and compelling manner. Fortunately for insurance buyers, the tools for analyzing and presenting that data are improving as well.
COVID-19 has also influenced another aspect of the new insurance marketplace. "We've discovered that we can do most of our work remotely, and that the virtual world has some advantages," Drummond explained. "It's easier to get people together for meetings, and bringing the C-suite to the negotiating table can have a noticeable positive effect for insurance buyers." "Those meetings are also easier to organize virtually, with underwriters located all over the world and in locations that some risk managers may never have had the opportunity to visit," he adds. "Employees in the industry, whether underwriters, brokers, or risk managers, are reaping the benefits of a commute to the living room rather than a commute to the office."
Willis Towers Watson mentions talent development and how the work-from-home environment will force leaders to come up with new ways to educate employees. "In this environment, how is the industry responding to talent development?" "Today's younger generation certainly faces a different world than what many in the industry grew up with," Drummond explained.
The report concludes that the cost of insurance will continue to rise in the near future. Most buyers will pay more, but the market outcomes should be less painful. The two-tiered market, which has always existed to some extent, is still in place in many places, but the disadvantage of being in the higher-risk tier is not as severe.
"For better or worse, our industry will continue to follow supply and demand laws," Drummond said. "If supply continues to rebound as it did in the second and third quarters of 2021, we could see rate cuts begin as early as the second quarter of 2022." This will not be a general trend across all lines of business, and distressed lines of business, most notably cyber, will continue to face challenges well into 2022."
The Insurance Marketplace Realities series is released in the fall and is updated in the spring. The full report, as well as a video message from Jon Drummond, can be found on the Willis Towers Watson website.