The insurance industry is currently facing the hardest market seen in a generation, marked by rising rates and increased underwriting restrictions. New research from Liberty Mutual and Safeco Insurance found that 83% of agents say this is the hardest market they can remember seeing, and almost 90% of consumers reported rate increases in the past year.
The forces that shape insurance market cycles are complex, but there are three main factors contributing to the hard market:
- High inflation
- Severe weather events
- Nuclear verdicts
High Inflation
As the global economy grapples with the current inflation crisis, the insurance industry has not been immune to rising costs. The impact of inflation on insurance rates is a topic of increasing concern for insurance companies and consumers alike.
Periods of high inflation can result in insurance companies experiencing higher claims payouts and operating costs, leading to more expensive premiums for the consumer. As a result, some customers may have to drop their coverage or switch policies to save on costs.
Severe Weather Events
Crippling storms continue to wreak havoc across the U.S. in record numbers. In 2023, there were 28 separate weather and climate disasters that exceeded $1 billion in damage.
From 1980-2023, the U.S. averaged just 8.5 such events per year. For the most recent 5 years (2019-2023) that number has increased to 20.4 events.
Nuclear Verdicts
The term “nuclear verdict” refers to any court award or settlement that is exceptionally high, and it is being heard more and more often when it comes to the insurance industry. Nuclear verdicts of $10 million or more reached a 15-year high in 2023.
Insurance is a safety net that offers protection from liability and lawsuits. But with the size of settlements increasing dramatically, insurers have increased premiums as a hedge against these large payouts.
