Markets in Focus :: Q3 Insurance Pricing & Market Update

Even though the commercial insurance industry has grown over the past few years and revenues have been increasing, the market has slightly slowed down because of the COVID-19 pandemic. This was mainly due to the severe economic downturn that forced many businesses to close temporarily or permanently. With businesses ceasing operations, the unemployment rate rose sharply, reducing demand for industry services. However, the demand for essential businesses and corresponding increased premiums were enough to offset the effects of the pandemic. As businesses reopen and the economy recovers, industry revenue will continue to rise. Growing businesses are more likely to expand their operations when profit levels increase, but to expand, they need to purchase more insurance for employees and facilities. Industry revenue is anticipated to grow at an annualized rate of 4.4% to $240.2 billion in 2022, including a 2.8% rise in 2022 alone. While pricing is still relatively elevated, capacity remains available within the market for favorable accounts. To reflect this change in the market from the pricing peaks of 2020 and early 2021, we are now referring to the general P&C market as a “disciplined market,” instead of the previous “hard market.”

As Federal Fund Rates (FFR) and interest rates rise to combat inflation, it has become significantly more expensive to finance acquisitions and fund projects with debt. As such, the elevated cost of capital for companies tends to result in an economic slowdown and overall decline in demand for business insurance. In the past, extended recessionary environments have typically led to a lagged softening of the overall insurance market – the most recent example occurred in the ten-year soft market that arose after the 2008 financial crisis. Not all recessions are the same nor have the same market forces, and the next anticipated global recession (which the U.S. might technically already be experiencing unknowingly at the time of writing, since Q2 GDP figures have not yet been calculated) will most likely include some unique factors. These include ongoing global conflict, labor shortages, and supply chain woes keeping pricing for goods and services elevated despite economic turmoil. We will continue to monitor the changing market landscape and keep our clients informed on how to achieve the best results with their risk management programs.

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