5 Key Commercial Insurance Considerations for 2022

Standard and Poor's 2022 Commercial Insurance Industry Outlook is now available. Here are 5 takeaways.

2021 was a pivotal year in the risk and insurance industry, and 2022 will no doubt bring new risks to light.

The pandemic created supply chain issues, restricted the ability of many businesses to operate, and spurred the need for innovative technology solutions to allow workers to do their jobs from home. New concerns arose to accompany these changes — like the increased cybersecurity concerns from a newly minted work-from-home workforce.

Ransomware and phishing attacks struck companies and organizations from every industry, even insurance companies.

But opportunities also emerged for companies to work differently.

Innovations in technology allowed work to continue from home as people found new ways to collaborate. Virtual tools made it easier for claims adjusters to view damaged property remotely and to settle claims virtually. Telehealth visits allowed injured workers to see their providers safely without risking leaving their homes during the pandemic.

There is no going back to the way things used to be — the new normal following the pandemic means technological innovations are here to stay. Insurance companies are working differently, and the trend is expected to continue.

To better understand how this flurry of changes will affect the commercial insurance industry, S&P Global Market Intelligence released its report, “The Big Picture – 2022 Insurance Industry Outlook.”

The company’s short take on the industry outlook for 2022 is that insurers will continue to need to respond swiftly to changing market conditions and be willing to “shatter their status quo” to manage the challenges that arise from new and evolving risks in many areas.

In the report, S&P Global Market Intelligence identified five significant areas of focus for the risk and insurance industry next year.

1) Technology Continues to be Key

Our industry has been shaped by technology as a driver — 2022 will be more of the same.

Most of the major carriers in the private passenger auto industry offer usage-based insurance policies or discounts, but privacy and data usage concerns have made adoption by consumers slower than anticipated. In commercial auto applications, however, fleet monitoring technology has flourished.

The report spotlights backend carrier practices as the next money-saving opportunity.

While less exciting on its face compared with telematics, reducing claims cycle time and lowering expenses through technology are predicted to be key efficiency drivers in 2022.

2) Distribution Channels are Expanded with Digital Options

Coming alongside the technology disruption is the growth of digital sales and service in the industry. Consumers have more options than ever before, with many new startups and Insurtechs offering a digital-only product.

Global companies are reaching out to potential customers through non-traditional means, like TikTok, YouTube, and WeChat.

The report notes “the tech industry’s role in influencing customer behavior will help shape the future of insurance distribution.” Consumers expect more digital products and services, and this trend will continue in 2022.

3) New Challenges Arise from Novel Risks

COVID-19 changed many things in our world and brought a renewed focus on risk management and insurance coverage.

Media coverage of businesses battling insurers to collect on their business interruption coverage was prevalent. Life insurance sales increased as people were reminded of their own mortality.

High-profile cyber and ransomware attacks focused the public’s eye on cybersecurity risks. All of this increased attention on insurance and risk management can be a good thing as more consumers want insurance products to protect them.

The report highlights the insurance industry’s unique position to drive social change.

From carriers divesting in coal and tobacco to withdrawing from geographic markets prone to wildfire or flood risk, there is much that insurers can do to precipitate social change. But, as the report notes, there is often little incentive for carriers to take political action.

Social inflation is another concern for 2022.

Pandemic-related court delays eased trial verdicts in 2020 and 2021, but with the return of court dates insurance companies could again see social inflation drive up claims costs. Nuclear verdicts were trending up since the early 2000s, taking a short hiatus during COVID-19 court closures — but now we could see a return to the rising costs with the return of trials.

4) Going Global Looks Different

The global insurance market looks different now than ever before.

The report highlights some reasons for this, including Brexit, pandemic-related differences in various countries, and political tensions around the world.

The aftershocks of the pandemic may alter how markets see risk and handle M&A activity, according to S&P Global report.

“The pandemic may also accelerate global organic growth opportunities due to a renewed focus on underinsurance by consumers and governments in developed and emerging markets alike,” the report said.

5) Modernizing the Definition of an Insurer

While the term ‘disruption’ may be overused, we have still seen challenges to the definition of what it means to be an insurer.

In the property and casualty realm, technology startups, Insurtechs, and new entrants to the marketplace, like Tesla self-insuring its own vehicles, have all disrupted how we view insurance companies.

In many cases, tech companies build a platform first, then apply their technology to various verticals like insurance.

In the life and annuity sectors, the business model has shifted to a more capital-light version where reinsurers take the leading role.

The report states: “The marriage of life and annuity liabilities obtained through reinsurance with differentiated affiliated asset management capabilities, including the ability to manufacture private credit instruments, promotes the potential for otherwise elusive higher returns in a low interest rate environment.” &

Abi Potter Clough, MBA, CPCU, is a keynote speaker, author and business consultant focused on Insurtech, leadership and strategy. She has over 15 years of experience at a Fortune 500 company with expertise in P&C claims operational leadership, lean management consulting, digital communications and Insurtech. As the past chair of the International Insurance Interest Group of the CPCU Society, Abi remains involved in many international initiatives and projects. She has published two books about change management and relocation. Abi can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.