Contributor: Deanne Rogers, London Casualty Manager

The Casualty market looks considerably different than it did at this time last year, which is having a significant impact on prices, capacity, demand, terms, conditions and more.

Let us take a closer look at the macroeconomic impacts:

Prices

The market is experiencing a notable softening as competition increases post pandemic. The average rate increases are closer to 7 percent compared to 10 percent last year. This trend is expected to continue, as opposed to the Property market, where costs rose by an average of more than 20 percent over the last 12 months.

Capacity

Casualty capacity has reduced since 2019, but it has not contracted as much as capacity in the Property market. The main area of contraction is in the excess of loss sector where large global carriers are no longer willing to commit lines of £50m plus on the large international programmes.

Demand

This remains consistent in the Liability space mainly due to Employers’ Liability (EL) being a legally required line. Insured’s would struggle to trade without adequate Public and Products Liability.

Terms & Conditions

Despite some of the softening mentioned above, there is a definite tightening of terms and conditions with extensions now unavailable or coming with imposed inner limits.

Inflation, other external factors, and trends

The impact of increasing inflation in the economy is beginning to have its effect with estimated sales and wages increasing in the industrial sectors (Manufacturing/Wholesaling) as prices rise. It will be interesting to see how this effects the Leisure sector as disposable income may reduce.

Carrier trends

Whilst we try not to focus on the lasting impacts of COVID within the insurance market, we cannot ignore how it has impacted carriers. Due to the pandemic, insurers and reinsurers have suffered substantial losses and are therefore looking to reverse these by putting pressure on rate, mainly in the Property sector but this spills over into other lines such as Casualty. Carriers are being more circumspect in the trades they write i.e., not exiting whole lines of business but leaving certain non-performing sectors such as heavy construction or high hazard leisure.

Capacity for MGAs is proving harder to find as the effects of the pandemic and years of a soft market have taken their toll – positively for Burns & Wilcox. Within our Casualty line of business, we have two binders that run side by side that have incepted in the last 18 months. Smaller MGAs have had to close as binders have not renewed and carriers have tightened their appetite within existing binders.

Impact on brokers and agents

Submission quality has had to improve as underwriters are now requiring more in-depth underwriting information, not just in the processes carried out and the products supplied by Insured’s, but also financial history such as past bankruptcies.

As discussed, earlier cover is being restricted with less extensions available and inner limits being introduced in areas such as efficacy, USA jurisdiction and more. Meanwhile, a general need for more in-depth submission information is required, especially in terms of activities and contractual conditions to suppliers and the Insured’s financial history.

Among the most important pieces of information to include with any submission are:

• Statement of facts
• Pending legal issues or judgments
• Voluntary liquidations
• Bad debt or other corporate financial information

It is very important that brokers target and use key insurers that provide stability, expertise and ‘A’ rated paper and use these relationships in a more portfolio-based way rather than just on individual cases. This creates a professional, trusted relationship that benefits the customer, insurer and broker.

Looking ahead to 2023 trends

The government has settled on a policy of no further pandemic mandates for businesses, which provides more certainty in the mid-term. While the COVID phase has passed within the Casualty market, the inflation phase has arrived.

The continued impact of inflation will be felt, although the hope is that it will be “under control” in 2023. The price of timber, steel and other building materials continues to rise, meaning replacement costs will also increase. Higher energy prices highlighted by oil and natural gas increases will filter down to all industries.

Another likely outcome is unhappy workforces, due to possible redundancies and freezes on wages, which can lead to a higher number of claims in the workplace.

Despite this, due to market competition, the expectation is that the market will stabilise in terms of rating, with rate increases estimated to fall as low as 1-3 percent.

Providing unmatched service and expertise

One of the trademarks of the Burns & Wilcox team is the strong and long-lasting relationships we have with our brokers. These relationships were strengthened during the first 18 months of the COVID pandemic, when Burns & Wilcox was able to nimbly respond to meet broker needs and deadlines, so even as competition increases, these relationships will serve us well.

The Burns & Wilcox team has a long-term deal with our partners that allows us to provide brokers and policyholders with a sense of stability, which extends to in our underwriting philosophy, pricing and our claims handling, and is quite rare in the current market.

Burns & Wilcox continues to expand its MI systems, which will improve all the vital functions of an insurer to benefit our customer base.

It cannot be overstated that client service is more important within the market than ever before. As a leading MGA, we continue to provide quick response times to brokers, accuracy in documentation, and claims services support. The versatile Burns & Wilcox team, backed by expertise and industry experience, is prepared to serve our partners well during a time of change in the Casualty market.