Q3 2023: Global Insurance Market Overview

Q3 2023: Global Insurance Market Overview
November 16, 2023 15 mins

Q3 2023: Global Insurance Market Overview

A complex macroeconomic environment continues to shape risk strategies and market responses.

Key Takeaways
  1. The D&O and Cyber markets continued to become more buyer friendly, and the Property market showed signs of stabilization, although Nat Cat risks remained challenged.
  2. Industry leaders took steps forward in their fight against social inflation and "Nuclear Verdicts".
  3. Insurer growth focus sharpened as year-end targets approached, but underwriting remained disciplined and risk differentiation gained further importance.

2023 has been shaped so far by geopolitical turbulence and climate-related events, but also economic resilience in the face of persistent inflation. Humanitarian concerns are at the forefront of global priorities for society at large, but lingering concerns about financial solvency following failures in the banking sector continue for many business leaders. Beyond these foundational concerns, cyber/ransomware threats, the shifting labor market, and technological advances such as Artificial Intelligence (AI) are weighing on the minds of people from every corner of the world, including business leaders who are guiding their firms in these changing times. Indeed, the results of Aon’s recent Global Risk Management Survey of nearly 3,000 business leaders around the world pointed to cyber risk, business interruption, supply chain disruption and failure to attract or retain talent as some of their top concerns. While each of these risks poses unique challenges, their increasing inter-connectedness and severity calls for a further evolution of risk transfer approaches that leverage rapidly developing datasets and sophisticated modeling to identify a combination of traditional and innovative solutions that holistically meet each firm’s individual risk tolerances and objectives. 

Aon’s global team of experts can help, whether you are navigating the traditional insurance market, seeking alternative capital solutions or need specialized support such as terrorism products or supply chain management advice. This quarter’s report describes some of the important developments in the Q3 insurance market and includes special features (on topics such as Generative AI and "Nuclear Verdicts") to help you navigate the complexities and challenges of today’s risk and insurance environment.

In summary, key Q3 insurance market trends include:

A complex macro environment shaped insurer confidence and strategies. Economic resilience, gradual improvements in global supply chains, and a global construction boom served to bolster insurer confidence, while geopolitical instability, persistent social and economic inflation, and climate-related concerns created uncertainty and conservatism. Use of data, analytics and modelling gained further momentum in informing insurer strategies and optimizing capital deployment.

While the Q3 insurance market continued to moderate as insurers sought to balance growth with profitability, divergent conditions continued for favored versus challenged risks.

  • Favored and well-performing risk types, including significant portions of the Financial Lines market, experienced an expansion of underwriting appetite, an increase in available capacity from new and established insurers, and healthy competition, driven largely by insurers’ return to profitability, an interest rate driven boost in insurer performance, and confidence that coverage language had been (re)aligned with insurer intent.
  • Higher-risk, natural catastrophe-exposed, and claims-impacted risks, as well as those not demonstrating mature risk management practices, experienced the most significant price increases and capacity constraints, driven largely by natural catastrophe-driven volatility, a challenging early-2023 reinsurance market environment, and rising legal settlement amounts (e.g., "nuclear verdicts").
  • Across all risk types, the underwriting environment was disciplined and focused on risk differentiation. Superior results were achieved through early engagement with insurers and robust, differentiating submission details including valuation methodologies, risk control practices, improvements implemented, and lessons learned from past claims.

 

Insurance Market Overview

Expand the options below to read a summary of how the insurance market trended in Q3 2023 across pricing, capacity, underwriting, limits, deductibles and coverages.

Global Insurance Market Insights Overview
  • Pricing

    Adverse claims trends pressured pricing upward across Auto and Casualty, while Cyber and Directors & Officers experienced a softening market as incumbent insurers sought to retain and grow their portfolios. Property pricing remained volatile due to concerns related to inflation, high reinsurance costs, climate change and Natural Catastrophe exposures. USA-exposed risk (on non-USA placements) remained challenged.

  • Capacity

    Capacity was sufficient across most products and risk types as established insurers expanded their appetite, and other insurers (re)entered markets targeted for growth. Capacity for Natural Catastrophe-exposed Property risks remained constrained – and expensive – driving greater use of alternative solutions including index-based products, self-insurance and captives.

  • Underwriting

    As insurers focused on profitable growth, underwriting stringency gave way to flexibility, but discipline continued.  Underwriters focused on individual risk profile, controls and performance. Risk quality and differentiation remained a top priority. Use of data and analytics to support decision-making continued to gain prevalence. Superior results were achieved through early engagement with insurers and robust submission details, including descriptions of valuation methodologies, risk control practices, improvements implemented, and lessons learned from past claims.

  • Limits

    Most placements renewed with expiring limits and sub-limits; however, Property limits were pressured upward by economic inflation, which, together with social inflation and "nuclear verdicts", also impacted Auto and Casualty limits. Larger limits were available on Cyber and Directors & Officers placements as clients sought to restore limits reduced in recent years. Detailed descriptions of Property valuation methodologies were required, and valuation limitation clauses/margin clauses were mandated with greater frequency.

  • Deductibles

    Expiring deductibles were achieved on most placements, although increases and minimum deductibles were required on some poor-performing risks and higher-risk sectors. Decreases were available on some well-performing classes and risks but were often declined by clients due to incommensurate additional premiums.

  • Coverages

    Coverage enhancements, supported by quality underwriting data, were available in areas targeted for growth as insurers continued to leverage coverage terms as a differentiator. Some exclusions (e.g., Communicable Disease, War and Territory restrictions) remained non-negotiable. 

Insurance Market Trends by Line of Business

Expand the options below to read a summary of how the insurance market trended in Q3 2023 across key lines of business, including Automobile, Casualty/Liability, Cyber, Directors & Officers and Property.

Global Insurance Market Insights Trends by Product
  • Automobile

    A convergence of factors led to moderate-to-challenging market conditions. Costs continued to climb, driven by inflation, large verdicts and settlements, global supply chain disruptions, increasing accident frequency, labor shortages, and advanced automotive technologies; however, the availability of alternative solutions and healthy insurer appetite for well-performing risks served to dampen market impacts and price increases. The underwriting environment was disciplined; underwriters focused on portfolio sustainability and client risk management practices, especially for heavy risks. Innovative automotive technologies served to enhance underwriting approaches and product offerings.

  • Casualty/Liability

    Moderate market conditions, characterized by flat to modestly increased pricing, disciplined underwriting and focused but healthy appetite, continued across most of the portfolio, despite insurer concerns related to economic, social and claims inflation – including "nuclear verdicts", litigation funding, US Auto attachment points, large auto/heavy fleet exposures, biometric privacy, diacetyl, forever chemicals (PFAS), wildfire and Traumatic Brain Injury. Challenging risk types, US-exposed risks (on non-US placements), risks with adverse loss experience and programs with low deductibles or attachment points experienced a more challenging environment characterized by stringent underwriting, conservative capacity deployment and material price increases in some cases. 

  • Cyber

    Despite increasing complexity and frequency of ransomware incidents and ongoing privacy-related losses, softening market conditions continued as growth-focused insurers expanded their appetite, and capacity across the market. Underwriting requirements eased slightly as insurer understanding of Cyber risk further matured while insureds presented stronger security controls. Concerns related to systemic and supply chain risk continued to mount. Focus on privacy controls continued, with specific attention on biometric data and pixel tracking, as well as new privacy/consumer protection regulations. Underwriters continued to evaluate and scrutinize coverage offered for critical infrastructure, systemic and/or correlated events, and war. 

  • Directors & Officers

    Softening conditions continued despite a complex backdrop of elevated risks including geopolitical instability, inflation, financial market fragility, equity market volatility, supply chain challenges, increasing litigation funding, and an evolving regulatory framework. Capacity from new and established insurers continued to increase in a growth-focused market with very few new buyers (IPOs, deSPACs, etc.), which created healthy competition and favorable client pricing outcomes. Underwriting remained disciplined, especially related to listed risks, cryptocurrencies, pharma and oil/coal related exposures, although underwriters demonstrated some flexibility in coverage terms and conditions for targeted risks. Alternative structures (e.g., higher retentions, coinsurance, quota shares, and alternative capital solutions such as captives) continued to serve as useful levers.

  • Property

    The market divergence between "targeted" and "non-targeted" risks continued. Risks in higher-hazard occupancy types, or that were Natural Catastrophe exposed or claims impacted, experienced conservative, challenging and volatile market conditions which were driven by increased reinsurance costs, increased Natural Catastrophe losses, inflation, and ongoing supply chain challenges. Well-performing risks and risks in lower-hazard occupancies experienced a more favorable environment characterized by increased line sizes and healthy competition; however, a focus on profitability continued. Across the portfolio, underwriting was disciplined, and scrutiny of insured values continued. Updated valuations and detailed descriptions of valuation methodologies were required. Margin clauses or coinsurance penalties were mandated where valuations were deemed inaccurate or under-reported. In response to the volatile geopolitical environment, underwriters further limited or excluded Strike, Riot and Civil Commotion (SRCC), Cyber, Terrorism, War and Sanctions, and implemented wider geographical exclusions.

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Cyber/ransomware threats, the shifting labor market, and technological advances such as AI are weighing on the minds of people from every corner of the world, including business leaders who are guiding their firms in these changing times.

Joe Peiser
Joe Peiser
Chief Executive Officer, Commercial Risk Solutions

Insurance Market Trends by Region 

Expand the options below to read a summary of regional insurance market trends in Q3 2023. For the full details, download the PDF.

  • Asia Pacific
    • Demand for alternative risk transfer solutions has increased, highlighted by the growing number of feasibility studies undertaken by Aon in relation to Captives, Parametric Insurance and Discretionary Mutual Funds. Organizations continued to re-evaluate their approach to managing risk and sought solutions to help smooth pricing and coverage volatility to elevate their confidence in navigating on-going uncertainty.
    • Insurance premiums increased modestly due to opposing market forces - increased competition and a focus on profitable growth tempered rate increases while rising inflation and valuation scrutiny increased exposures resulted in moderate premium increases.
    • Capacity improved as insurers competed to retain and grow their portfolios in targeted areas where rates and scope of coverage were viewed as adequate.
    • Casualty emerged as the most challenged line of insurance relative to other classes.  Insurers continued to push rate increases to remediate against several years of poor performance.
    • The bifurcation across product lines and different countries further increased – where pricing and capacity, in particular, experienced a softening trend in one market but a hardening trend in another. The full geographic findings, available in this PDF, demonstrate this with a greater mix of reds and greens than prior quarters.

    Asia Pacific chart 1

    Asia Pacific chart 2

  • EMEA & the UK
    • Insurers remained sharply focused on the impacts of social and economic inflation amidst rising claims costs and reserves, increasing valuations, and pressured profits. 
    • General market conditions continued to moderate with the notable exceptions of poor-performing and US-exposed risks as well as risks with Natural Catastrophe exposure. Such risks generally experienced significant price increases, capacity constraints, limited terms and conditions and often sought alternative solutions to achieve program objectives. 
    • The Directors & Officers, Professional Lines and Cyber markets continued to soften, characterized by underwriting flexibility, increased appetite – including for lower attachment points – and robust capacity deployment.

    EMEA and UK chart 1

    EMEA and UK chart 2

  • Latin America
    • Mid-year treaty renewals served to further moderate the market. Pricing varied by line of business and risk attributes, while capacity – from local and international (re)insurers – was generally stable. The underwriting environment remained disciplined, with an emphasis on loss history, risk quality, and risk controls. The Cyber market experienced the most rigorous underwriting environment. Further limitations related to cyber risk, the Russia/Ukraine conflict, and Hours Clauses (for Strike, Riot and Civil Commotion, Terrorism and Political Risk coverages) were imposed.
    • A positive economic outlook and expected growth, especially in the Construction and Infrastructure sector, drove insurance market optimism; however, insurers remained cautious related to political and economic risks and instability.  
    • Driven largely by Inflation and continued supply chain challenges, property values continued to rise, and as a result, valuations remained under scrutiny, and limit increases were mandated in some cases. 

    LATAM chart 1

    LATAM chart 2

  • North America
    • A moderate and dynamic market environment continued as insurers sought to balance growth with profitability. Pricing remained modestly up, and established insurers expanded their appetite and capacity in well-performing segments. Underwriting continued to be individualized to the risk profile. A focus on year-end targets is expected to accelerate an expansion of appetite and capacity. 
    • Social Inflation and nuclear verdicts continued. Insurers monitored plaintiff activity for further increases stemming from a well-funded plaintiff's bar with a boost from litigation financing, trial attorneys and plaintiffs with better technology and data, and juries more focused on social responsibility.
    • Property market challenges continued, with persisting rate increases, valuation scrutiny and capacity contractions largely driven by reinsurance costs and Natural Catastrophe concerns. Climate change remained a key insurer concern.  Risks in susceptible geographies (e.g., Natural Catastrophe-exposed) and higher-risk industries experienced the most acute and significant market challenges.

    North America chart 1

    North America chart 2

How Can Organizations Respond? 

Evolve your insurance paradigms

Think strategically about insurance as a form of "rented capital" and consider it in your firm’s capital allocation strategy. Capital allocation is no longer limited to retirement planning and budgeting; business leaders’ approach to capital allocation has changed as theories have evolved and as tools of business have matured. In the modern business world, C-suite leaders understand that capital allocation – to distribute and invest financial resources to maximize stakeholder profits – is the core function of their job. Through this new, more strategic lens, firms can utilize insurance as a way to free up other sources of capital that can be deployed to drive growth and profit. Banks have been focused on capital optimization for a long time and now, with AI, the Internet of Things (IoT) and advances in technology that have enabled the robust identification and quantification of risk factors, the shift can happen more broadly. 

Scrutinize and carefully manage your geopolitical risk

Review policy language, limits, sub-limits and deductibles related to Cyber, Terrorism, War, Political Violence and Civil Unrest. Look closely at Sanctions Clauses and provisions related to physical loss or damage to property, business interruption and extra expense, as well as Ingress/Egress and Contingent Time Element (CTE). Insurers are implementing further limitations and exclusions – you may want to consider purchasing specific coverage for Political Risk, Special Risks, Cyber, War, Terrorism, SRCC, Travel, and Accident & Health. Talk to your Aon team about Alpha – Aon’s global facility for Terrorism and Political Violence coverage. Reach out to your Aon Team and to your insurer(s) if your covered location(s) or operation(s) have sustained damage or if you believe business interruption has occurred.

Start the renewal process early

Underwriters are evaluating more information than ever. In addition, while escalations and referrals have decreased in some parts of the market, they remain common and often require longer lead times. Start the renewal process early to ensure you have sufficient time to tell your story and respond to queries, and to provide underwriters sufficient time to properly evaluate and price your risk. 

Differentiate your risk

Insurers are focused on risk quality, and risk differentiation is key to achieving superior outcomes. Leverage available data to provide robust, quality underwriting information including property valuation methodologies, risk modelling, risk improvements, lessons learned from past claims and actions you are taking to build resilience. Provide access to experts from across your organization. Step up in-person engagement where appropriate. 

Update values and other exposures

Inflation, rising labor costs and supply chain disruptions have driven up property and business interruption values while social inflation and changes in companies’ operations and geographic footprints have impacted liability risk. Work with your Aon team and across your organization to conduct a thorough assessment of your exposures and valuation methodologies and ensure that sums insured, indemnity periods, limits and deductibles are up-to-date and aligned. This will help guard against underinsurance and avoid insurer-imposed limitations such as margin and coinsurance clauses. 

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

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