From major hurricanes and wildfires to the killing of United Healthcare’s CEO, key events in the last half of 2024 have exacerbated uncertainties in the property and casualty (P&C) insurance markets heading into 2025. That is likely to stymie premium and limits relief sought by commercial insurance customers, but some insurance segments should still see some softening of terms.
At the start of 2024, experts anticipated both property and casualty insurance would see premium increases and tightening capacity limits as the year progressed. That trend largely unfolded for most casualty lines and will likely continue in 2025, with a few exceptions, such as workers compensation.
“The casualty market is more competitive, but that does not mean it is soft,” said Mike Vitulli, national casualty practice leader at Risk Strategies, which caters mostly to middle-market companies.
Property, on the other hand, saw a rush of new capacity providers as 2024 progressed. As a result, it appears to be stabilizing rather than hardening further, though the spate of natural catastrophes in the second half of the year may inhibit any further softening.
“It is a mixed bag,” said Denise Perlman, president of national business insurance at Marsh McLennan Agency. “Some sources show softening as more capacity enters, but the impact from hurricanes, wildfires and convective storms could delay stabilization and reductions.
The market faces an early test this year from wildfires in and around Los Angeles that are anticipated to result in $28 billion to $35 billion in insured losses, according to Verisk. Fitch Ratings said in a January 13 report that the losses are likely to “materially exceed” highs from past wildfire events but unlikely to impact the ratings of P&C insurers and reinsurers. “Insured losses should remain within ratings sensitivities for affected insurers, given ample capital levels, diversified risk exposure and insurers’ ability to increase premium rates,” the credit rating agency said.
The market is well positioned to handle multi-billion-dollar loss years as the new norm, Perlman said. “Even if 2024 ends up being a massive loss year, we anticipate many carriers’ property portfolios will perform well, driving a declining rate market for clients,” she added.
Nevertheless, the fires may push more insurers to join the growing list of those that have reduced their exposure to California or left the state altogether, including giants such as Allstate and Chubb.
Casualty Insurance Softening for Certain Lines
On the casualty front, some lines are seeing sufficient capacity, but not for all companies seeking coverage. Mike Walsh, president of commercial P&C at broker NFP, described workers compensation policies as “flat to soft,” with rate decreases likely for companies with fewer losses and less claim activity. “We have a lot of markets willing to write it in a package or on a monoline basis,” he said.
Walsh added that management liability has also declined, falling anywhere from 5% to 15% in 2024, and while these are smaller decreases than the 25% to 30% seen the previous year, declines should continue into 2025.
For construction liability, additional sources of capital have entered the market, including managing general agents (MGAs) and managing general underwriters (MGUs) that specialize in aggregating new sources of capacity, Vitulli said. However, he added that excess liability coverage remains challenging in certain locations such as New York City and in other areas for certain types of construction, including streets and luxury homes.
Excess liability is a different story this year, especially for companies seeking significant coverage volume. “We are seeing reduced capacity and greater firmness in pricing,” Walsh said. “Where we were building towers of $300 million or $400 million with 10 or 15 carriers, we are now having to use 20 or 25 [carriers],” resulting in additional fees for the insured.
Events such as the shooting of United Healthcare’s CEO further exacerbate the situation. “The shooting in Midtown Manhattan is getting a lot of press, and that creates more uncertainty around the liability that companies have, and that is likely to continue,” said Edward Chiang, CEO of Verita, an MGU and fully owned subsidiary of Willis Towers Watson.
In a world with less uncertainty, companies could reasonably expect rate reductions this year given U.S. P&C insurers’ near-record premiums and profitability in 2024. “Market dynamics point to record insurer profitability, and that is taking into account all the natural disasters and other challenges over the last year,” said Fred Barnachawy, CIO of insurance consultancy DeshCap. “That creates room for negotiation and room for them to give away some profits in the form of rate reductions, and it comes down to risk managers’ training and the technology and analytics they use to drive those negotiations.”
Property Insurance Trends More Defined
Rates are more clear-cut with property insurance, Barnachawy said. Companies in natural disaster-prone geographies, especially in hard-hit industries like hospitality, have seen premiums double and even triple, while those in geographies less prone to natural disasters will have a leg up in negotiations.
However, natural disasters introduced more uncertainty to areas typically considered low risk for those perils, for example, Hurricane Helene's catastrophic flooding in Appalachian towns and Asheville, North Carolina, increasing convective storm damage in the Midwest, and wildfires on the East Coast. As a result, insurers in 2025 will look more closely at concentrations of value. “A real estate account that has properties near the coast but also in the Midwest allows an insurer to say, ‘That gives me at least a spread of risk as far as where they are located,’” Walsh said.
Once concentrated in western states like California, wildfire risk has now spread to 11 states, which Perlman said has limited available coverage. Consequently, risk managers are increasingly considering more parametric coverage, rather than indemnity, partly because it is more available and because it pays out quickly when triggered by pre-defined parameters.
“It is particularly relevant for wildfire since a lot of P&C insurers exclude wildfire,” Perlman said. “In several states, while carriers cannot exclude wildfire, they can restrict the amount of capacity or offer limited coverage, so parametric insurance can be an alternative.”
The cyber insurance market remains at the top of P&C customers’ minds. While an abundance of capacity entering the market has helped stabilize rates, Perlman said the market is likely to firm up in the latter half of 2025. This will especially be the case if more big events occur like the July 2024 CrowdStrike outage, which temporarily crippled airlines and other industries.
Although there is significant claim activity around cyber, Walsh agreed there is plenty of capital available and rates are reasonable, indicating the business is profitable for capital providers. “I would call it a fairly flat environment in terms of rates,” he said. “There is more comfort [with the risk], so we are seeing more capital being deployed toward cyber.”
The catastrophe bond market is an anticipated source of new capital supporting cyber coverage. Specialty insurer Beazley launched the first cyber cat bond at the start of 2024 and completed its third deal of the year—worth $210 million—in September.
Experts anticipate further growth in the cyber insurance-linked securities market. “Appetite for cyber ILS is clearly growing, but the market remains in the early phases of development,” said Darren Pain, director of cyber at the Geneva Association, an international association of insurers. “The complexity of cyberrisks and wide variation in the extent of coverage in policies present challenges to widening the investor base. Progress in modeling capabilities and policy standardization will be key to fostering confidence among investors and unlocking the potential of ART solutions for cyberrisks.”
Negotiating in an Uncertain Market
In an insurance market where capacity is generally available, but insurers are uncertain about the risks they are taking on, insurance buyers’ negotiating skills and resources are increasingly paramount.
“It comes down to how well the corporate risk manager is trained, and the technology and analytics they use to drive the negotiations with insurance brokers,” Barnachawy said. For example, when comparing two companies paying $1 million in P&C premiums with similar claim histories and are in low-risk geographies, he said that the well-equipped one should find premium savings of at least 25% over the ill-equipped one.
“A generalist type of argument only goes so far,” he said. “If the corporate risk manager can get into the fine print of the policy and put pressure on the broker to go back to the insurers with coverage details and why it is not worth X amount of premium, they will have more success.”
In negotiations, it is vital to have concrete details to shape a narrative, including an explanation of why significant losses occurred and what actions the company has taken to prevent future losses. It is also critical to be able to explain the risks a company faces when selling or marketing its products to customers and how those risks are addressed in contractual language. Being able to explain the quality controls the company’s suppliers have in place is also important, given supply chains today often stretch around the globe into less regulated markets.
“We are being asked more detailed questions about, for example, a client’s cargo shipping,” Vitulli said. “Those are some of the largest claims out there, so insured companies must make sure cargo and other transportation companies are properly certified.”
Such negotiating tactics have become critical in areas such as commercial auto, where premiums have remained firm over the past several years as carriers faced elevated liability claims. However, Vitulli said commercial auto through a single carrier is particularly difficult now since carriers that once contributed $25 million to a tower are more often opting now to participate in $5 million to $15 million increments.
Getting more carriers involved can mean higher premiums and tougher claim settlements, prompting companies to increasingly consider other options. “Many firms are now considering alternative risk transfer approaches, such as captives and higher deductibles,” he said.
Savings can also come from companies establishing multi-year P&C programs with a multi-year deductible and MGUs that specialize in certain industries can streamline capacity from reinsurers and capacity providers, reducing costs, Chiang said.
According to Walsh, middle- and upper-middle-market insurance buyers in particular have become noticeably more informed in recent years, and they are comfortable looking at the architecture of their risk management programs in more creative ways to address risk, whether through larger retentions or various flavors of captive programs. “Good brokers can show, based on an insured’s past experience, the benefits of having more skin in the game, how that smooths things out from a rate perspective, and the opportunity to recapture those funds they would have otherwise spent on the first-dollar coverage,” he said.