We are pleased to share the Lockton H2 2023 Insurance Market Update. This issue provides insights across 17 business segments. It also includes a spotlight feature on our US operations and the local trends in that insurance market. The intention of this update is to keep you up to speed with underwriting and risk trends from a London Market perspective.
The economic environment has a significant effect on insurers’ strategies as it affects their investment and underwriting performance, and the global outlook is slowly improving. Inflation is coming down from the record highs seen in the lastyear, suggesting that the interest rate hike series seen recently in many economies is coming to an end. While high interest rates may benefit insurers’ investment income, recent increases should provide a respite for investors and consumers, supporting economic activity.
Nevertheless, recent price increases for raw materials, labour and energy continue to impact the financial performance of businesses in many sectors. Inflation is increasing claims costs for insurers, which is why it remains a major topic at renewals for property risks.
Likewise, an increase in claims costs from natural catastrophes is adding to the pressure insurers are exerting on pricing for property risks. While this is mostly affecting the US market, predicated on a record year for catastrophic events with the number of billion-dollar events increasing to an average of over 8 per annum, the effects are spilling over to other jurisdictions via reinsurance agreements. Casualty insurers and reinsurers continue to raise concerns over the impact of inflation, the rate of adverse loss development and the continued challenges of litigation funding. Once seen as a phenomenon for US domestic risks, the increase in lawyers being remunerated by financial outcomes is showing signs of impacting insurers with large international books that have significant US exposures.
In other insurance areas such as Directors’ and Officers’ Liability or Cyber, our specialists are noticing shifts in underwriters’ approaches that may benefit insurance buyers. This is mainly driven by an increase in capacity following years of rate hardening. The insurance market has seen greater competitive opportunities for buyers in a wide range of risk areas. As always, businesses with well-managed risks and a compelling narrative around environmental, social and governance (ESG), strong risk management, and good claims profiles, are set to benefit most.