Despite 2020 being one of the strangest years in recent history, the insurance industry continued to function efficiently, with U.S. property and casualty rates continuing their upward movement, according to MarketScout’s quarterly Market Barometer.
The fourth quarter 2020 composite rate for commercial insurance was up 7.1 percent as compared to a 6.25 percent increase for the third quarter of 2020.
The biggest rate increases by line of coverage were for umbrella liability, 12.7 percent; professional liability, 10.3 percent, and directors and officers liability, 11.7 percent, Dallas-based MarketScout said. Commercial property rates were up 9.0 percent, followed by commercial auto at 8.3 percent and EPLI at 6.7 percent. General liability was up 6.0 percent, and business interruption and BOP coverages each were up 5.7 percent. Inland marine was up 4.3 percent, and fiduciary was up 3.0 percent. Bringing up the rear were crime at 2.7 percent, surety at 1.0 percent and workers’ compensation at 0.7 percent.
Rates increased for all sizes of businesses and industries, with transportation leading at an 11.5 percent increase, followed by habitational at 9.5 percent and contracting at 7.5 percent. The service industry was up 6.8 percent, and manufacturing was up 5.8 percent. At the bottom, public entity was up 5.2 percent, and energy was up 3.8 percent.
“We believe the slight moderation in energy rates in the fourth quarter 2020 is an anomaly based on the considerable reduction in exposures in the oil and gas sector. Rates for public entities were also relatively modest,” said Richard Kerr, CEO of MarketScout..
Large accounts ($250,001 – $1 million) were up 9.3 percent, and then came medium accounts ($25,001 – $250,000) up 8.3 percent. Jumbo accounts (over $1 million) were up 8.0 percent, and last were small accounts (up to $25,000) up 6.7 percent.
In reviewing the results for all of 2020, the composite rate increase was 5.6 percent.
Kerr noted, “Composite rates for property and casualty insurance have traded in a relatively tight corridor the last 10 years as compared to the 10-year period of 2001 to 2010 when rate swings were considerably more volatile. Improved underwriting tools, catastrophe modeling and more thoughtful reinsurance placements have taken most of the severe peaks and valleys out of the market. Simply stated, underwriters are smarter than they were 15 years ago. The exceptional underwriting and technology tools help make for a more stable market.”
The composite rate for personal lines was up 6.3 percent in the fourth quarter of 2020, reflecting the market’s rate acceleration. In fact, homeowners with properties valued over $1 million paid average rate increases of 8.2 percent, clearly signaling ongoing price increases for large homes, according to the Market Barometer.
In profiling market conditions, Kerr said, “Rates are up modestly across all sectors of personal insurance with high net worth homeowners rates up the most. Wealthy clients are buying more homes as an escape, and if they are not buying something new, they are renovating the ones they already own.
“Homeowners lucky enough to own properties with the home replacement cost in excess of $1 million have borne the brunt of most of the rate increases, especially in the fourth quarter 2020. For those homeowners fortunate enough to own a beach or mountain home, increases are more severe. Homes in brush fire areas of California or hurricane prone sections of Florida are assessed rate increases as high as 20 to 30 percent. The only way to offset big rate increases is to shop your insurance and limit coverage or raise deductibles.”
Rates for homeowners with property valued under $1 million were up 5.0 percent. Private passenger automobile rates were up 6.2 percent, and rates for personal articles were up 5.8 percent.
MarketScout explained auto rate growth was primarily propelled by increases in loss ratio. While there were fewer motorists on the road during the pandemic, driving actually became riskier during 2020.
According to LexisNexis Risk Solutions, DUIs and major speeding violations increased significantly during the year.
The National Alliance for Insurance Education and Research conducted pricing surveys used in MarketScout’s analysis of market conditions.
Founded in 2000, MarketScout is an insurance distribution and underwriting company and is a Lloyd’s Coverholder and MGA for U.S. insurers. The company owns and operates the MarketScout Exchange, as well as over 40 other online and traditional underwriting and distribution venues.
In 2018, MarketScout launched an incubator to accelerate start-up MGAs and assume operational functions for existing MGAs and insurers. In addition to Texas, the company has offices in Arkansas, Florida, Illinois, Nebraska, Pennsylvania, South Carolina, Tennessee and Washington, D.C.