Tough P&C Insurance Market Ahead: 4 Factors Contributing to Rising Rates in 2021

December 22, 2020
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The COVID-19 pandemic impacted the 2020 insurance market in ways that no one could have predicted in 2019. As we head into 2021, we can’t be sure what the future will bring – but we do expect these factors to continue to have an impact on the commercial P&C marketplace.

Commercial rates are on the rise, and this trend will likely extend into 2021.

According to MarketScout, commercial property rates were up 7% in the third quarter of 2020. The composite rate increase was 6.25%, and no line or industry class was spared from the trend of rising rates. Insurance Journal reports that global commercial insurance pricing increased 20% on average in the third quarter, based on the Marsh Global Insurance Price Index.

The Insurance Marketplace Realities 2021 report from Willis Towers Watson predicts that property rates and auto rates are likely to continue to increase in 2021.

Many factors are contributing to rising rates. Here’s a look at a few of them, and how we can expect them to evolve in 2021.

#1: The Pandemic

The COVID-19 pandemic has been one of the defining features of 2020. With an approved vaccine, there’s hope that the virus will be gotten under control in 2021. However, the fallout of the virus will likely continue to be felt for some time, especially as the legal battle between insurers and business owners over business interruption coverage for COVID-19 continues. According to Insurance Journal, insurers have been winning the majority of these cases so far. 

#2: Natural Disasters

Natural disasters have been another key factor. The 2020 hurricane season was very active, and wildfires continue to pose a growing threat in California and other western states. These conditions may continue to worsen. According to the USGS, rising temperatures are increasing the likelihood of droughts and the intensity of storms, while rising sea levels can expose new areas to risks. 

#3 Crashes and Nuclear Verdicts

Even as vehicle safety technology has improved, crash rates have remained high because of distracted driving, fatigued driving, speeding, and other factors. According to the FMCSA, the number of large trucks and buses involved in fatal crashes increased 48% between 2009 and 2018. Some of these crashes have resulted in enormous settlements. Property Casualty 360 reports that jury verdicts are increasingly reaching figures of more than $10 million. As a result, commercial auto rates are increasing, and coverage is increasingly difficult to secure.

#4 Ransomware and Other Cyber Threats

Finally, cyberattacks have posed a major threat. ZDNet says that ransomware attacks increased seven-fold in the last year. Companies often pay up to restore their systems and to prevent their data from falling into the wrong hands, but there has been concern that this encourages future attacks. The U.S. Department of Treasury has also warned that payments could run afoul of OFAC regulations.

Other cyber risks, including business email compromise schemes and data breaches, continue to pose a threat as well.

Get Prepared Now

As insurance rates increase, capacity is expected to go down. It could be more difficult to secure coverage than it has been in the past several years. Underwriters are becoming increasingly selective. Start preparing for the changing market conditions now.

  • Review open claims and reserves and work with your insurer to close as many claims as possible, well before your renewal.
  • Make sure your open claims aren’t over-reserved.
  • Review and update your employee handbook, loss prevention procedures, and protocols.
  • Revive your focus on safety, starting with hiring and employee orientation.
  • Don’t wait until the last minute. Use your Heffernan agent as a sounding board. It may be a good time for some of you to explore captive insurance options as an alternative to traditional insurance.

The team at Heffernan Insurance Brokers is here to help you and to advocate on your behalf. Contact us with any questions you may have.