Prior to the onset of the COVID-19 pandemic, the property & casualty insurance market was already beginning to harden across most lines of coverage. The impact of the pandemic is expected to drive further hardening in the market for several interrelated reasons.
- Macroeconomic Factors: This pandemic will likely amount to the most dramatic economic event since the Great Depression. Forecasts vary, but pre-pandemic levels of GDP and employment are at least 12-18 months away. Additionally, the Fed’s recent statements confirm that low interest rates will remain in place for years. Taken together, insurance carrier profitability will be strained by the combination of lower payroll and sales exposures along with lower investment income. We expect baseline pricing to increase as carriers seek to offset these negative impacts.
- Pandemic-Related Losses: There is significant uncertainty about what losses the global insurance industry will ultimately need to bear in connection with COVID-19. In the US, most claims related to business interruption are not expected to be covered. In other countries, however, some coverage is expected to apply. Economic downturns and layoffs are also correlated with an increase in D&O / employment practices claims and workers’ compensation claims. Further, there is a significant expectation of losses if businesses reopen and customers / vendors / employees become sick. Legislation regarding a “liability shield” for businesses would help to address this risk, but uncertainty remains. In all, the Lloyd’s marketplace estimates $107 billion of industry-wide COVID-19 losses in 2020 alone, which will have an unfavorable impact on capacity and pricing.
- Continuation of Pre-Pandemic Loss Trends: Catastrophe losses related to natural disasters are expected to persist at elevated levels and the 2020 hurricane season is projected to be worse than average, which will drive continued pressure on the property insurance market. Additionally, increased litigation risk and large jury verdicts (often referred to as “social inflation”) will continue to be a factor in general liability and excess liability pricing, and capacity will continue to be strained for tougher risks.
These trends will not be uniform across businesses. Lower-risk operations, particularly those with most of their premium in the Workers’ Compensation line, will continue to feel relative stability. Businesses with elevated risks or more atypical risks, however, should prepare for increased renewal pricing. Your RBN team will work with you to discuss renewal strategy and potential opportunities to improve your risk profile.
The coronavirus has forced employers to reimagine how they will conduct business now and into the future. As a result, narrow conversations around benefits have broadened into consultations around hiring, onboarding, EEOC compliance, how to safely bring employees back to the office, and the increased need to accommodate employees with caregiving responsibilities. These discussions are now outweighing the typical conversations about benefit plan design and reducing overall benefit spend, even as financial pressure is weighing on many businesses.
Prior to the pandemic, self-funding was and continues to be the fastest growing segment of health plans, with many plans attributing to 20% or more of their claim cost to pharmacy. Pharmacy costs will continue to be driven by new drugs, direct-to-consumer advertising, payer consolidation, and continued lack of transparency into their costs.
As employers contemplate a future with more remote employees, one consideration is designing benefits programs that are not only cost effective and competitive, but appropriate for a more distributed workforce. Employers should be aware of strategies that can minimize the number of insurers, reduce costs, mitigate risk and improve the experience for newly mobile / remote employees.
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