Commercial Insurance 2024 Market Outlook

Key commercial trends

1. Social inflation changes – Social inflation refers to societal trends influencing the ever-rising costs of insurance claims and lawsuits above the general economic inflation rate. According to the National Association of Insurance Commissioners, this term’s “social” aspect represents shifting social and cultural attitudes about who is responsible for absorbing risk (i.e., the insurer or the plaintiff). Current drivers of social inflation include a surge in third-party litigation funding, ongoing alterations of tort reforms, and the rise of anti-corporate culture. Altogether, these factors have empowered stakeholders to hold businesses of all sizes and sectors to higher standards and demand accountability for their potential wrongdoings, prompting additional litigation and associated insurance claims.
2. Extreme weather events – Extreme weather events, such as hurricanes, tornadoes, hailstorms, and wildfires, continue to make headlines as they become increasingly devastating and costly. Compounding concerns, these events aren’t limited to one geographic area, impacting businesses across the country. According to research platform Bloomberg Intelligence, 2023 marks the fourth consecutive year in which global insured losses from natural disasters are projected to exceed $100 billion. Stateside, the National Oceanic and Atmospheric Administration confirmed that the United States experienced a record number of billion-dollar weather and climate disasters in 2023, with the total cost of these events sitting at more than $57 billion. Disasters such as Tropical Storm Hilary, Hurricane Idalia, and the Hawaii firestorm were devastating. Convective storms (e.g., thunderstorms, tornadoes, and hailstorms) also surged this past year. Industry research revealed these storms contributed to 68% of all weather-related losses in the first half of 2023, costing $35 billion and nearly doubling the 10-year average. Many weather experts believe such extreme conditions and events are the new norm. As these catastrophes become more frequent, the insurance industry must adopt innovative solutions to keep up with weather-related losses. Moving forward, businesses can expect to encounter additional emphasis on weather readiness from insurance carriers.
3. Economic pressures – Surging inflation has been a persistent concern in commercial insurance over the last few years, resulting in increased claim expenses and rising premiums. Such inflation peaked in 2022, evidenced by the highest consumer price index (CPI) in 40 years. Although the CPI has cooled throughout 2023, it’s still elevated, driving up costs across several commercial coverage lines and inflating overall loss expenses. In the property insurance space, the costs to repair, replace, or rebuild structures and their contents following losses have increased, prompted by rising labor and material expenses. In the auto insurance market, vehicle repair expenses and subsequent accident costs have also increased, brought on by supply chain disruptions for several critical vehicle parts. The workers’ compensation and liability insurance segments are also affected by other inflation forms (e.g., medical and wage inflation).
4. Supply chain disruptions – Dating back to the beginning of the COVID-19 pandemic, the United States and much of the world have faced ongoing supply chain disruptions brought on by fluctuating demand for certain materials and slowed shipment and delivery times for some high-demand goods due to factors such as extreme weather, international conflicts, and labor shortages. According to a recent survey conducted by media company CNBC, 61% of businesses reported that their current supply chains aren’t functioning normally, with many of these companies placing orders for essential inventory up to six months in advance to avoid operational delays. Supply chain issues also impact companies’ recovery capabilities following commercial property losses, resulting in prolonged claims processes and substantial business interruptions. This, in turn, has drawn out some companies’ indemnity periods, which refers to the time spent restoring business operations after insured losses take place. When faced with extended indemnity periods, businesses may be more susceptible to coverage gaps and rising premiums.
5. AI developments – Artificial intelligence (AI), which has surged in popularity in recent years, encompasses machines and devices that can simulate human intelligence processes. According to the International Data Corporation, the market for AI technology and other cognitive solutions will exceed $60 billion by 2025. This technology can improve loss control measures and claims management practices for several commercial coverage lines. For example, AI technology can be a valuable safety tool to help mitigate workers’ compensation exposures by detecting injury patterns, determining fundamental causes of workplace incidents, and suggesting methods to prevent future losses. AI systems can also promote greater decision-making capabilities with predictive insights and help businesses conduct more effective due diligence processes in the boardroom, possibly reducing corporate exposures and related liability concerns.
6. Geopolitical upheaval – This past year saw the continuation of severe geopolitical upheaval, particularly relating to the ongoing Russia-Ukraine conflict, shifting trade dynamics between China and the United States, rising tensions amid the Israel-Hamas war, and growing nation-state threats. These global events have had far-reaching impacts, prompting new tariffs, export restrictions, economic sanctions, and coverage exclusions. Further, they have exacerbated existing technological challenges, inventory backlogs, material shortages, and supply chain issues. As these events continue, companies should prepare for potential disruptions by closely monitoring evolving global trade policies and considering domestic production solutions to ensure business continuity.
7. Reinsurance challenges – Reinsurance consists of a contract between a reinsurer and an insurance carrier—also called a primary insurer—that permits the carrier to transfer some of the financial exposures associated with issuing insurance policies to the reinsurer. In recent years, the reinsurance segment has faced substantial challenges. Increasing market demand and large-scale losses have forced reinsurers to make significant payouts, threatening their overall profitability and generating hardened conditions across several lines of coverage. Consequently, many primary insurers (especially those in the commercial property space) have seen their reinsurance costs increase over the last few years, with some encountering double-digit rate jumps. From there, these conditions have contributed to certain primary insurers increasing rates for their insureds, highlighting the trickle-down effect of reinsurance challenges.