Hard market moderating – but cyber to remain ‘challenged’ well into 2022

After several annual cycles with steep, often relentless increases, prices in the commercial insurance market are beginning to moderate and are, in fact, “moving toward stability”, suggests a new report. However, distressed lines of business, most notably cyber, will likely remain challenged well into 2022.

The marketplace has taken significant steps toward “correcting” itself, according to Willis Towers Watson, which expects commercial insurance prices in North America to “soften” gradually and bring further stability in the coming year.

While Willis predicts “market moderation” in 2022, it stressed that cyber liability and fiduciary liability insurance will be two exceptions to this general trend. Rates within these lines have been going up steeply, and in the case of cyber, the increases the insurer is forecasting for 2022 are even steeper, indicates its latest Insurance Marketplace Realities report.

“For the most part, we are moving toward stability as we watch the workings of a simple economic law — supply and demand,” explained Jon Drummond (pictured), head of broking, North America at Willis Towers Watson.

“That does not mean, however, that this is a simple marketplace. The two-tiered marketplace we highlighted in our last issue remains a reality in many lines of business; conditions are better for better risks and tougher — sometimes quite a bit tougher — for less attractive risks.”

The report points to the forces that led to the hard market, including systemic rises in risk from heightened catastrophe losses likely driven by climate change, “social inflation” and rising exposures in areas ranging from cyber to liability, which have not gone away, it said.

It highlighted that the cost of insurance is still going up — for the near term, meaning that “most buyers will be paying more, but marketplace results should be less painful”.

“The two-tiered market, which has always been a reality to some degree, is still in effect in many places, but the downside of being in the higher-hazard tier is not as bad,” it noted.

“For better or worse, our industry will continue to move with the laws of supply and demand,” concluded Drummond. “If supply continues to come back as it has in the second and third quarters of 2021, we could see rate decreases commence as early as the second quarter of 2022.

“[But] this will not be a wholesale development across all lines, and distressed lines of business, most notably cyber, will remain challenged well into 2022.”

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