Insurance Market Moderation Continued Across Most Lines in Q3

Illustration of Bar Charts Rising from the Horizon with Half in Blue and Half in Orange

November 20, 2023 |

Illustration of Bar Charts Rising from the Horizon with Half in Blue and Half in Orange

The global insurance market continued to moderate during this year's third quarter as insurers looked to balance growth with profitability, according to a new report from Aon. Still, the market saw divergent conditions continuing for favored versus challenged risks, Aon says.

In its Q3 2023: Global Insurance Market Overview, Aon says the directors and officers (D&O) and cyber markets continued to become more buyer friendly during the third quarter, while the property insurance market showed signs of stabilizing. The market for natural catastrophe coverages remained challenged, however, Aon says.

Insurers' focus on growth sharpened during the quarter as their year-end targets grew near, Aon says, though their underwriting remained disciplined and the differentiation of risks took on increased importance.

During the quarter, insurers' confidence and strategies were shaped by a "complex macro environment," the November 16, 2023, Aon report says.

"Economic resilience, gradual improvements in global supply chains, and a global construction boom served to bolster insurer confidence, while geopolitical instability, persistent social and economic inflation, and climate-related concerns created uncertainty and conservatism," Aon says. "Use of data, analytics, and modelling gained further momentum in informing insurer strategies and optimizing capital deployment."

The report says that in the divergent market differentiating between favored and challenged risks, favored and well-performing risk types, including significant portions of the financial lines market, saw an expansion in insurers' underwriting appetites, and increased capacity from new and established insurers.

Favored insurance buyers also saw healthy competition among insurers during the third quarter, Aon says, driven largely by insurers' return to profitability, interest rate-driven boosts to insurers' performance, and confidence that coverage language had been (re)aligned with insurers' intent, Aon says.

At the same time, higher-risk, natural catastrophe-exposed, and claims-impacted risks, in addition to those that failed to demonstrate mature risk management practices, saw the most significant price increases and capacity constraints during the third quarter, Aon says. Those price hikes and capacity challenges were driven largely by natural catastrophe-driven volatility, the challenging reinsurance market early in 2023, and so-called nuclear verdicts with rising legal settlement amounts.

"Across all risk types, the underwriting environment was disciplined and focused on risk differentiation," the Aon report says. "Superior results were achieved through early engagement with insurers and robust, differentiating submission details including valuation methodologies, risk control practices, improvements implemented, and lessons learned from past claims."

In terms of third-quarter pricing trends, adverse claims trends created upward pricing pressure in auto and casualty lines, Aon says, while cyber insurance and directors and officers experienced a softening market as incumbent insurers looked to retain and grow their portfolios.

Property pricing remained volatile during the quarter due to inflation-related concerns, high reinsurance costs, climate change, and natural catastrophe exposures, Aon says.

Capacity was sufficient across most coverage lines and risk types during the third quarter as established insurers expanded their appetites while other insurers entered or re-entered markets targeted for growth, the report says.

Capacity for natural catastrophe-exposed property risks did remain both constrained and expensive, Aon says, resulting in greater use of alternative solutions including index-based products, self-insurance, and captive insurance.

Underwriting became more flexible as insurers focused on profitable growth during the quarter, though underwriting discipline persisted, the report says.

"Underwriters focused on individual risk profile, controls and performance. Risk quality and differentiation remained a top priority. Use of data and analytics to support decision-making continued to gain prevalence," the Aon report says. "Superior results were achieved through early engagement with insurers and robust submission details, including descriptions of valuation methodologies, risk control practices, improvements implemented, and lessons learned from past claims."

Most third-quarter placements renewed at their expiring limits and sublimits. Aon says. Property limits did see upward pressure resulting from economic inflation, however, which, together with social inflation and nuclear verdicts created upwards limit pressure for auto and casualty limits.

Cyber and directors and officers insurance buyers were able to find larger limits during the third quarter as they sought to restore limits that had been reduced in recent years, the report says.

Most third-quarter placements also renewed at their expiring deductible levels, Aon says, though deductible increases and minimum deductibles were required on some poor-performing risks and higher-risk sectors. "Decreases were available on some well-performing classes and risks but were often declined by clients due to incommensurate additional premiums," the Aon report says.

Third-quarter buyers saw opportunities to obtain coverage enhancements, supported by quality underwriting data, in areas in which insurers sought growth by leveraging coverage terms as a differentiator, Aon says. Some exclusions such as for communicable disease remained nonnegotiable, however.

The Aon report notes that in the cyber-insurance line, softening market conditions continued in the third quarter as insurers focused on growth expanded their appetites and capacity across the market. Those increased appetites came despite the increasing complexity and frequency of ransomware incidents and ongoing privacy-related losses, Aon says.

"Underwriting requirements eased slightly as insurer understanding of cyber risk further matured while insureds presented stronger security controls," the Aon report says. "Concerns related to systemic and supply chain risk continued to mount. Focus on privacy controls continued, with specific attention on biometric data and pixel tracking, as well as new privacy/consumer protection regulations. Underwriters continued to evaluate and scrutinize coverage offered for critical infrastructure, systemic and/or correlated events, and war."

November 20, 2023