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Navigating the Hard Market in 2024

Hard markets, characterized by high premiums and deductibles as well as stricter terms, will continue to plague risk managers this year, with property presenting bigger challenges than casualty.

Insurers accelerated price increases a few years ago when inflation broadly began to increase rapidly. Premiums for commercial property insurance are expected to increase by an estimated 17% or 18% in 2023 compared to a 16.8% increase in 2022, according to Conning, a provider of insurance research and analysis. On the casualty side, increases will likely be smaller but still significant, with premium increases in areas such as general liability and commercial auto coming in respectively at 8% and 9% in 2023, compared to 11% and 12.5% the year before.

“We expect a lot of the pressures driving up premiums to ease in 2024 but not subside,” said Alan Dobbins, director for insurance at Conning, adding that inflation will continue to push up property replacement costs while social and legal pressures will increase the cost of claims on the casualty side. However, in both cases, insureds can take steps to improve coverage and make it more affordable.

Property Rates Increasing by Location

Property insurance premiums could increase by as much as 25% in 2024, according to Carl Smith, national property practice leader at insurance brokerage Risk Strategies. He noted, however, that increases will vary significantly based on location and industry, with those in high-risk catastrophe zones and industries fairing the worst.

The hard market became more entrenched for property insurance after 2022’s Hurricane Ian, which caused significant damage. Reinsurers faced major losses that constrained their capital and spilled over to the primary insurance market, ultimately increasing costs for insureds.

Losses from hurricanes in 2023 were much less severe than the year before, providing some relief to reinsurers. However, numerous flooding events, often stemming from convective storms, have directly impacted primary insurers. Insureds located in areas predisposed to natural disasters—such as hurricanes in the Gulf Coast, floods in the Midwest or Western wildfires—have felt the impact of the hard market the most.

Small- and mid-size offices or other real estate in certain geographical areas like various large cities on the East Coast will see much less of a hard market, according to Fred Barnachaway, chief information officer of business insurance and risk management consultant firm DeshCap.

Casualty Lines Moderating

The outlook is much kinder on the casualty side. Pricing on workers compensation insurance has been flat to negative for several years, and rates have also come down for directors and officers (D&O) and professional liability policies, Dobbins said. After a couple of years of underwriting profitability, pressure has eased on general liability insurance.

Workers compensation insurance continues to be very competitive with few aggravating issues, and premiums may fall further in 2024, according to Mike Vitulli, national casualty practice leader at Risk Strategies. General liability will likely increase by mid-level single digits, he said, and commercial auto will likely go up 5% to 10%, depending on the severity of losses.

Carriers have reduced their limits over the past three years, so companies can expect their brokers to continue signing on more carriers to fill programs. In addition, the pandemic dramatically slowed down the court system, so insurers remain uncertain about how much they will be on the hook for, which could be reflected in premiums.

“Everybody is now cautiously optimistic that 2024 is going to be a good year, but they are keeping their fingers crossed on how litigation and claims unfold,” Vitulli said. “There could be a bit of a snap back toward the end of 2024 and into 2025 if some bigger claims come to fruition, as people fear.”

Cyber Insurance Considerations

Cyber insurance tends to sit outside the traditional property and casualty categories, and while it has grown rapidly in recent years in terms of premium, price increases in 2023 were in the single digits, according to Conning. Be careful, however, since much of the cyber insurance market since 2022 has been written on a non-admitted basis rather than an admitted basis, in which the state will pay outstanding claims when an insurer becomes insolvent.

Writing non-admitted, “excess and surplus” lines gives insurers more flexibility in determining rates and exclusions that may not be permissible in the admitted market. “There’s been a huge shift to the non-admitted market,” said Steve Webersen, managing director for insurance research at Conning. “That probably means insured companies are paying a lot more for coverage and getting less of it, with more constraints.”

Mitigating Hard Market Impacts

According to Barnachawy, there are several ways risk professionals can mitigate the impact of potentially higher premiums and less coverage. One approach is to reword policy language so it addresses the company’s specific business operations rather than providing broader blanket coverage. For example, some provisions or sub-provisions covering earthquake or machinery risks are less important to office-building landlords in Manhattan.

“Examine the fine print regarding what the company is covered for and what the insurer is charging for, and the company and its broker should be able to negotiate less coverage for less premium,” Barnachawy said. “Do your homework first, though, and back up your specific requests with hard data—do not just make a broad-based request.”

Another approach, especially for bigger companies with significant cash flows that can cover larger or more frequent claims, is to increase the deductible that the insured must pay before the insurance kicks in. Smaller companies may want to turn to an expert to determine the optimal deductible and coverage levels. Consider the range of coverage your business needs and what would good to have versus what is necessary, Barnachawy said.

It may also be beneficial to shop the market and hire an independent expert to send out a request for proposal (RFP) to several insurers to foster competition and more favorable terms.

Companies should keep in mind, however, that there will be less wiggle room to negotiate policies that are compliance-driven, such as a bank or franchisor requiring a certain type of property coverage, compared to those that are purely seeking protection against loss.

Using Narratives to Fortify Policy Negotiations

Casualty policies typically provide more room for negotiation, and it is critical to submit strong proposals to underwriters to explain why they should provide coverage. Vitulli said that most insurers want strong submissions that include a persuasive narrative and good underwriting information, ideally including 10 years of loss data. Risk managers can then talk to the carrier about the company’s specific risks, which can help avoid more generic and less beneficial underwriting.

“You have to make sure the carriers underwrite the individual risk on an individual risk basis,” Vitulli said, adding that it may sometimes be advisable for the broker to set up an in-person meeting or video call to convince the underwriter, since risks can sometimes look worse on paper than in actuality.

“You may need the company’s general counsel or treasurer to explain why the company is heading in the right direction, the changes it has made to reduce risk and improve risk controls, and why claims from seven years ago are not indicative of the company today,” he said.

A company should also work closely with its broker and use analytics to identify and measure its risks and to determine the right limit to buy, how much deductible any given insurer can take, and the financial tradeoffs between premium savings and the deductible level, for example. Larger companies may also want to consider the alternative reinsurance markets, including insurance-linked securities such as collateralized reinsurance or catastrophe bonds that are backed by the capital markets.

Overall, lower premiums can be a boon for insurers as well as insureds if they indicate fewer and lower claims. Many insurers analyze insured client data to identify and better understand claim trends and patterns to determine where claims are more frequent and what social and economic reasons prompt those claims.

By following recommendations from insurers based on this data, companies can reduce their risk exposure and achieve more favorable rates.  For example, EmPRO Insurance Co., a regional insurer in New York and surrounding states, uses its data to examine medical malpractice insurance claims trends.

“We’re able to take that data and convey the message back to the client that these are the areas where suits and claims are more prevalent and where you need to tighten risk controls,” said Brian Nolan, executive vice president and chief operating officer at EmPRO. “It’s a win-win for us and our clients, since a reduction in claims costs ultimately incurs a reduction in premium.”


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