Property
Market Conditions
Discussion Topics
3
EPIC INSURANCE BROKERS & CONSULTANTS
• Property Insurance Market Overview
• U.S. and Global Insured Catastrophe Losses
• Treaty and Retro Market Impact
• Soft Market to Hard Market Insurance Cycle
• The Florida Factor
• The Impact of Inflation
• What to Watch For
• What’s Next?
U.S. Inflation-Adjusted Catastrophe Losses
4
EPIC INSURANCE BROKERS & CONSULTANTS
The 2020s are off to an
ominous start with $76B in
average annual insured
losses
Average Insured Loss per Year
1980-2021: $23.8 Billion
2012-2021: $44.1 Billion
44
40
85
112
57
28
70
1980s:$5 B
1990s: $16 B
2000s: $27 B
2010s: $37 B
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Billions, 2020 $
Average for Decade
Hurricane Andrew
WTC
Katrina, Rita, Wilma
*2022 total is estimated figure through Q3
Harvey, Irma, Maria
85
Ida ($36B)
TX Freeze ($15B)
21
22*
70
Ian
($50B)
Source: Insurance Information Institute
Global Insured Catastrophe Losses
5
EPIC INSURANCE BROKERS & CONSULTANTS
Structural changes, catastrophic losses and a capital shortfall for reinsurers set the stage for precipitous increases in
insurance costs in 2023 and beyond.
• $12.5bn - $15bn shortage in reinsurance capacity
• Reinsurance companies cannot buy enough retro
(retrocessional reinsurance) which limits their
capacity to the retail market.
• Poor returns
• Reinsurers blaming poor building valuations and
unmodeled losses
Global Insured Catastrophe Losses
$130BN
$99BN
$45BN
$0BN $50BN $100BN $150BN
2022
2017-2021
2012-2016
Average Annual Losses
Source: Swiss Re
Treaty and Retro Market Impact
6
EPIC INSURANCE BROKERS & CONSULTANTS
Retro Market
(Capital
Markets)
Treaty
Reinsurers
Direct Insurers
Reinsurance retentions roughly
doubled and pricing up 30% – 40%
at 1/1/23. Client values need to be
raised and increased cost passed
on
Returns for the Insurance Linked
Securities (ILS) market have
been poor, while risk free
interest rates are up
Reinsurers have paid numerous
losses and are pressuring
Insurers to get accurate
building valuations from
insureds
Structural changes, catastrophic losses and a capital shortfall for reinsurers set the stage for precipitous increases in
insurance costs in 2023 and beyond.
Soft Market to Hard Market Insurance Cycle
7
EPIC INSURANCE BROKERS & CONSULTANTS
Insurance is Cyclical
Cycles usually span a number of years.
We are currently in what is known as a ‘Hard Market’
A Hard Market is when there’s
high demand for insurance
coverage and a low appetite to
insure. During a hard market,
rates are high and coverage
is difficult to find.
A Soft Market is when insurance is
readily available. Rates are
stable or falling because of
healthy competition in the
market.
Capital
Flows into
Market
Rates Start
to Fall
Insurers Chase
Market Share
Rates go
into Freefall
Market
capacity
eroded
Strong Profits
Seller’s
Markets
Risk
Selection
Rejects Some
Activities and
Industries
Insurer
Realization of
Losses
More Large
Events and Poor
Investment
Returns
Rates Start
to Rise
Currently within
this range of the
cycle
The Florida Factor
8
EPIC INSURANCE BROKERS & CONSULTANTS
• Florida is perennially the most challenging catastrophe risk zone in the world
• Hurricane Ian (estimated $50B insured loss) was final major event to push the
market into true hard market territory
• Insurers are reducing their capacity and raising rates more significantly in
Florida
• Some insurers have exited writing any Florida business
• Property catastrophe treaty reinsurance pricing increased dramatically at
January 1
• Relief for Florida insurance/reinsurance buyers is unlikely to be immediate
• Impact of legislative reforms will not emerge before mid-year and capacity
providers remain cautious
The Impact of Inflation
9
EPIC INSURANCE BROKERS & CONSULTANTS
• Inflation has reached multi-decade highs, with the cost of labor, construction
materials and transportation rising sharply in recent years
• Insurers hyper-focused on accurate replacement cost valuations given
recent inflationary trends
• A building constructed for $1M five years ago would cost roughly $1.47M to
build today
1.00
1.07
1.08
1.10
1.35
1.47
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 1/1/2023
Source: FM Global
What to Watch For
10
EPIC INSURANCE BROKERS & CONSULTANTS
• Extreme discipline in capacity deployment by insurers
• Dramatic rate and premium increases
• Wind coverage sub-limits
• Higher Wind deductibles
• 5% now the minimum standard across entire state
• 10%+ deductibles are possible
• Shared Limits
• More programs with multiple insureds sharing a loss limit
• Use of alternative risk transfer
• Catastrophe bonds
• Parametric insurance
• Industry Loss Warranties
What to Watch For
11
EPIC INSURANCE BROKERS & CONSULTANTS
• Valuation restrictions – insurers now expect insureds to report
accurate replacement cost values
• If not, insurers will likely quote with restrictive terms including
• Coinsurance
• Occurrence Limit of Liability Endorsement (OLLE)
• Margin Clause
• Blanket limits are not a given
What’s Next?
12
EPIC INSURANCE BROKERS & CONSULTANTS
• It could very well get worse before it gets better
• June 1 and July 1 reinsurance treaties – mainly for U.S. carriers
• Inflation persists, however the rate of inflation has slowed
• Hopefully Florida insurance legislation attracts more insurance capital
to Florida
• Frequency and severity of “Secondary” catastrophe perils (tornadoes,
hail storms, winter storms) could determine when the market will turn
• 2023 hurricane season
• Do not expect El Niño to save the day
• Sea surface temperatures continue to be elevated
FLC Insurance Summit
• May 18, 2023
© 2023 WTW. All rights reserved.
wtwco.com
14
© 2023 WTW. Proprietary and confidential. For WTW and WTW client use only.
Employer confidence in sponsoring healthcare benefits
over the next ten years is at its highest point in two
decades
Sample: Companies with at least 1,000 employees.
Note: High Confidence represents responses of “Very confident”. Years 2003-2016 are based on prior years of the TW Survey.
Source: 2022 Emerging Trends in Healthcare Survey, United States
wtwco.com
Sharp increases in inflation and market forces driving
projected rise in healthcare costs
15
© 2023 WTW. Proprietary and confidential. For WTW and WTW client use only.
Note: Percentages of healthcare trend are median numbers
Sample: Companies with at least 1,000 employees.
Sources: WTW 2022 Best Practices in Healthcare Survey; Bureau of Labor Statistics, CPI-U, CES.
wtwco.com
16
Healthcare costs are rising…
© 2023 WTW. Proprietary and confidential. For WTW and WTW client use only.
Source: Levin-Scherz, J., 8 reasons why health care cost inflation is likely to escalate, The Hill, April 2, 2022. Bureau of Labor Statistics.
1
Higher overall inflation and increased labor costs
6
Aftermath of the pandemic
5
Missed preventive and non-emergency care
4
Worsening mental health
3
Escalating drug costs
2
Provider consolidation
Unit Cost Utilization
●
●
●
●
●
●
●
●
Drivers:
…and will further exacerbate
the financial stress that
low-wage earners are
experiencing
-5% 5% 15% 25% 35% 45%
Housing
Transportation
Groceries
Healthcare
Retirement
Lowest earning 20 percent Highest earning 20 percent
Share of annual expenditures
(select categories), 2020
wtwco.com
17
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Employers struggle with rising costs and affordability
challenges while trying to increase investment in mental
health
What are your organization’s top health and wellbeing priorities over the next three years? (Select at most the top five options)
All industries
Public sector and
education
wtwco.com
18
• Nontraditional modalities of healthcare will transform the system
The health care delivery system is transforming at a rapid
pace
© 2023 WTW. Proprietary and confidential. For WTW and WTW client use only.
Primary Care
• Primary first models (e.g.,
Centivo)
• Virtual first models (14 virtual
first health plans in 2022)
• Shift towards more
Physicians Assistants and
broader
care teams
• Integration of point
solutions
High Performance
Networks
• Steerage to high quality
providers
• Transition from broad to
narrow provider networks
• Cost of care based on
provider selected
Precision Medicine
• Genetic testing
• Precise treatment journeys
Population Specific
Strategies
• Disease specific
(Alfie/Obesity, Oshi/GI)
• Population specific (Folx/
LGBTQ+, Hurdle/Black
mental health, Midi
Health/women
in midlife)
wtwco.com
19
Pharmacy evolution
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How will employers need to respond?
• Cost transparency, plan design and formulary considerations
• Ensuring the appropriate clinical pathways are followed
• Explore specialty medication programs and channels, including maximizers (i.e., SaveOn, Prudent, Variable Copay, etc.),
and site of care options (i.e., medical vs Rx, home vs infusion, etc.)
Gene & Cell Therapies
Digital Therapeutics
Diabetes and Weight Loss
Biosimilar alternatives
Includes a deep pipeline with recent approvals launched
at record costs and will require new thinking around
payment models and delivery (i.e., pay overtime, pay for
performance)
Are currently being approved by the FDA and
prescribed by physicians (i.e., Mahana, Pear
Therapeutics, etc.)
In the pipeline to treat refractory depression, anxiety,
PTSD, etc., but will require additional provider visits in
addition to the drug cost
39 biosimilars approved and around 30 are on the market; launch
of highly anticipated autoimmune biosimilars in 2023
Psychedelics
Rapidly increasing utilization and significant cost for blockbuster
GLP-1 medications (Ozempic, Wegovy, Mounjaro, etc.) used for
diabetes treatment and weight loss; nearly $20,000/person/year
