The Insurer TV’s Year in Review Part 2: Casualty, cyber and an insurtech roller coaster

Our year in review with The Insurer’s editorial team continues, with our latest episode featuring our North America editorial team – David Bull, James Thaler, Christopher Munro and Michael Loney.

In the second instalment of our end-of-year three-parter, we take a look at the impacts that emerging risks, social inflation and litigation finance are having on the casualty sector.

We also consider what direction cyber is likely to take in the year ahead, and contemplate the tribulations insurtechs underwent this past year, and where they’re likely heading in 2024.

Lastly, we end this episode on a high, taking a look at the “booming year” the E&S sector has enjoyed and what 2024 holds for this growing market.

But first – litigation. Activity picked back up this year after slowing during the Covid-19 pandemic. This uptick is backed by an increasingly aggressive plaintiffs’ bar and deep-pocketed litigation financing.

“It's leading insurers to look to settle claims of policy limits more often, rather than take the risk of going to court and facing the potential for a mega verdict,” said The Insurer’s North American editor David Bull.

Bull added that social inflation and nuclear verdicts are prolonging the hard market for auto, issues which are sure to carry on into 2024.

According to a Q3 Woodruff Sawyer report, the Council of Insurance Agents & Brokers (CIAB), commercial auto rates increased 10.4 percent in the second quarter of 2023, the largest increase since 2019, while general liability rates rose 5.2 percent, up from 4.9 percent the prior year.

Emerging Risks ahead

An emerging risk expected to bubble up in 2024 is the near-ubiquity of per-and polyfluoroalkyl substances, or PFAS, so-called forever chemicals, in water and elsewhere.

Christopher Munro, North American associate editor at The Insurer, says the industry is right to be concerned.

“I think the ultimate fallout of that, though, is yet to be seen. I mean, there's a lot of speculation on how that's going to impact,” said Munro.

“But in terms of actually what's driving losses now, it continues to be the same classes that we've been reporting on for some time now: commercial auto, sexual molestation, food processing and liquor liability are just some of those sectors and business lines that we've been reporting on as causing some concerns in the marketplace.”

Cyber rates moderate, but more capacity entering

The year saw moderation in price increases in the cyber market after months of stepped up ransomware activity. However, this hasn’t deterred more capacity entering the market.

Late 2023 saw the issuance of the industry’s first ever 144A cyber cat bond. While that’s a positive development that likely precedes more growth next year, Loney remains watchful, not expecting them to roll out in quick succession.

“I think it's fair to say that the deals we've seen so far, well, they're definitely significant, a more kind of proof of concept showing that these things can be done.”

One of the biggest issues for the class of business was around war exclusions, but Loney said there has been some “positive progress” around this in 2023, thus creating far more certainty around wordings and clarity into 2024.

“If you were a buyer of cyber coverage, you could be very, very confused about what was being offered on the cyber wording side earlier this year,” he said.

“Certainly there was a lot of complexity initially that appears to be easing. Lloyd’s has approved new wordings as well, I think over 30 that are now approved. So definitely there's been a lot of progress there, and the market is much more positive now than at the beginning of the year,” he added.

Insurtechs under pressure, E&S blossoms

While the insurtech sector is widely predicted to stay buoyant in the coming year, firms are clearly under increasing pressure from investors to show well-demarcated pathways to profitability when raising funds. To this end, many of them have shed headcount, reducing their workforces.

“There is an expectation that in the next 9 to 18 months it'll be critical for companies to show they can become profitable as they move to raise funds, or potentially could be acquired or shut down,” said James Thaler, head of Americas, news content at The Insurer.

“So I certainly would expect a lot more activity to pick up in 2024.”

We end with one of the year’s bright spots, the E&S boomlet of 2023, which is expected to continue. One of the biggest drivers of that activity has been the continued surge of business into the wholesale channel to E&S carriers.

“And, you know, that is very much driven by retrenchment that we're seeing certainly since 2019, if not before, from admitted carriers in certain segments and certain territories,” said The Insurer’s David Bull.

“That in turn drives this very strong submission activity across the board, and it continues to be really strong momentum on that front going into 2024,” said Bull.

“We're living in a world where it's increasingly risky in so many ways,” Bull continued.

“So, you know, the demand and the need for that kind of real specialty innovative product risk transfer is only growing. I mean, that's not going to go away.”

The team has been working tirelessly throughout 2023 to bring you breaking news, exclusive content and in-depth analysis.

If you haven’t already, please have a look at our summary of some of the major stories and themes that have been dominating our headlines this year and also check out The Insurer TV’s part 1 of our end of year review.

Be sure to look for the third and final instalment of the 2023 Year in Review, coming up tomorrow.