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Commercial Insurance Mid-Year Review

By May 16, 2024No Comments

Now that we’re halfway through 2024, it’s a good time to take stock of insurance market trends and projections. This mid-year commercial insurance review will help you do just that. As is often the case, we’re sharing both good and challenging news.

On the positive side, rate increases appear to be slowing, giving companies some much needed relief. On the challenging side, new risks are emerging, especially related to artificial intelligence, natural disasters, and class-action lawsuits. Although there are challenges in insurance and risk management, these bring opportunities for business leaders to differentiate themselves and grow their companies.

Mid-Year Insurance Review: Rate Trends

Commercial property and casualty insurance rate hikes have cooled in 2024, according to MarketScout. In the fourth quarter of 2023, rates were up an average of 5.6% across all lines, whereas rates were only up 3.9% in the first quarter of 2024. Commercial auto and commercial property lines saw the highest rate hikes – up 6.7% and 6.3%, respectively. However, compared to the double-digit property rate hikes of 2023, this is an improvement.

The Q1 2024 rate changes, according to MarketScout, are as follows:

  • Commercial Property: +6.3%

  • Commercial Auto: +6.7%

  • General Liability: +3.3%

  • Umbrella Liability: +6.3%

  • D&O Liability: +2.7%

  • Employment Practices Liability: +2.7%

  • Professional Liability: +3.7%

It’s important to remember that these figures represent national averages. Businesses in regions with higher risks (like Texas), as well as those with a poor claims history, should expect steeper rate increases.

Commercial Insurance Trends 2024: Coverage

Beyond pricing changes, several notable coverage trends are shaping the commercial insurance market in 2024.

  • Demand for cyber insurance is increasing. According to Chainalysis, ransomware activity increased in 2023, with ransomware payments reaching an all-time high of more than $1 billion. New AI tools (including generative AI images, large language models, and deepfakes) have prompted concerns over the risk of more convincing AI attacks. Given this, it’s unsurprising that many businesses are looking to mitigate their risks with cyber insurance. The Insurance Information Institute says the cyber insurance market is growing “dramatically.”

  • Regulatory changes are creating new risks. New regulations, including the first-ever standard for PFAS in drinking water and new rules on when businesses can classify workers as an independent contractors, may lead to a wave of lawsuits against businesses. Indeed, Reuters says a lawsuit has already been filed citing the new PFAS drinking water standard.

  • Class-action lawsuits are posing a greater threat. The 2024 Carlton Fields Class Action Survey shows that the percentage of companies facing class-action lawsuits has reached a 13-year high. Labor- and employment-related class-action lawsuits, in particular, have surged. More than three in four companies cite a growth in baseless claims as the biggest risk. Class-action lawsuits over data breaches are also up significantly, according to a 2024 report from Duane Morris.

Business Risk Management 2024: Challenges and Solutions

Although rate increases are cooling, insurance costs are still elevated compared to just a couple years ago, due to inflation and increasing exposures. To avoid claims and higher insurance costs, businesses need effective risk management solutions. Below are four key focus areas.

  • Cybersecurity: Cyberattacks are becoming more frequent, sophisticated, and costly. Even if your cybersecurity measures were sufficient a year or two ago, they might not be enough to guard against the new onslaught on AI-powered attacks. It’s time to reassess network settings and retrain workers.

  • Documentation: Class-action lawsuits are on the rise. Whereas safe and compliant practices help prevent many lawsuits, baseless claims are still possible. Research shows that many companies feel this problem is growing. In addition to improving risk management practices, companies may need to reassess their documentation practices. If your company is hit with a frivolous claim, detailed documentation may bolster your defense.

  • Employment practices: Employee activism and new regulations are leading to more employment-related disputes. This is a good time to review your employment practices for any possible weaknesses, especially in light of new regulations.

  • Disaster preparedness: Natural disasters are leading to more losses and higher insurance. Since this problem isn’t likely to go away anytime soon, a long-term approach is in order. Consider what property upgrades would reduce your exposures.

Leveraging Opportunities for Growth

This is a challenging time, but challenges also bring opportunities for growth. Businesses that leverage these opportunities now will come out ahead in the long run.

  • Explore new insurance strategies. If you can’t secure the coverage you need in the traditional market, consider exploring new insurance strategies, such as parametric coverage. You may find these solutions actually do a better job of managing your risks.

  • Employ new technologies in risk management. AI is leading to more frequent and convincing cyberattacks, but companies can also leverage AI to improve cybersecurity and other forms of risk management.

  • Focus on employee engagement. Employee activism may be leading to more litigation, but companies that show they value their employees can set themselves apart. This may be a good time to rethink employee benefits and company culture.

Preparing for the Rest of 2024 and Beyond

Recent rate hikes have been the result of increasing claims costs, largely due to the effects of inflation and natural disaster losses. Although natural disaster losses are still a significant factor, inflation has slowed, which will likely impact rates going forward.

Swiss Re says the property and casualty insurance sector’s profitability is likely to improve in 2024 – a trend that may help bring rate increases down. In 2024, Swiss Re expects commercial property rates to increase in the high single digits, whereas liability rates are expected to increase in the low single digits.

This is good news for the future. However, given all the exposures that businesses face, good risk management and insurance are still critical. Watkins Insurance Group is to help you develop an insurance package that reduces your risk.