MARKETPLACE OUTLOOK
EXPLAINING RATE INCREASES TO CLIENTS
Written By : Dave Hulcher , KAIA Executive Director
With Hurricane Ian bearing down on Florida , a LinkedIn post from a KAIA member agent caught my attention . It was a great post that highlighted the impact that Hurricane Ian , which made landfall in Florida on September 28 , could have on the Kansas marketplace .
He very eloquently explained how interconnected the global insurance industry is and highlighted the role that rising claims expenses and increased carrier utilization of reinsurance could have on the insurance sector . This increased utilization will drive up the cost of reinsurance treaty renewals and cause potential changes in coverage attachment points which could bring increased pricing , limitations in appetite , and coverage restrictions to primary carriers .
While it is difficult to find data specific to the impact that Ian could have directly on the Kansas marketplace , the post got me thinking about the conversations members have with customers explaining reasons behind pricing trends . Below are some of the global industry factors that may help customers understand why their premium may be increasing .
Industry factors that drive premium increases :
1 . Catastrophe claims : While insurers build catastrophic activity into their pricing modeling , increased catastrophe activity such as wildfires , hurricanes , derechos , and the polar vortex that hit Texas can drive up reinsurance utilization , which will increase future pricing .
2 . Increasing Reinsurance Renewal Costs : Primary insurers may pay increased rates on January 2023 reinsurance renewals . Guy Carpenter maintains a global property rate online index which covers movements of all major global catastrophe reinsurance markets . For January 2022 renewals , the index rose by 10.8 % reflecting price increases on reinsurer renewals . This rise is more than a double increase over 2021 ( 4.5 %) and was the biggest positive changes in the index since 2006 .
Reinsurance increases trickle down from primary insurers to consumers and it will be interesting to learn what 2023 reinsurance renewals look like .
3 . Broad-based Inflation : While inflation is affecting the entire insurance sector , it is especially prevalent in personal lines . A paper from the Swiss Re Institute highlighted that property lines face pressure from rising cost of materials , components , and wages . Construction costs increased an estimated 17 % in 2022 and Swiss Re forecasts an additional 12 % increase in 2023 . On the auto side , year over year pricing of new vehicles has increased 9.4 %, parts 13.4 %, and vehicle body work 12.6 %. This means personal lines rates are struggling to keep up and carriers are concerned about rate in adequacy , reserves inadequacy , and insurance-to-value .
4 . Social inflation : Insurers are seeing increased claims costs from increases in the number of outsized jury awards ( frequently referred to as nuclear verdicts ), legal proceedings that take longer than reasonably expected , growing distrust of large corporations , rollbacks in tort reform that overturn statutory limits for non-economic damages , and increased third-party litigation funding . ( Keep in mind these are things that KAIA continues to lobby for a solution .)
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