2
EPIC INSURANCE BROKERS & CONSULTANTS
Discussion Topics
• 2023 – A Look Back
• U.S. and Global Insured
Catastrophe Losses
• The Impact of Inflation
• Hard Market to Soft Market
Insurance Cycle
• The Florida Factor
• What’s Next?
2023 Property Market – A Look Back
• Record-level global catastrophe insured losses in 2022 ($165B), including Hurricane Ian
($53B) led to first true hard market since 2006 post- Hurricane Katrina
• Carriers cut back capacity 10% - 25% on average
• Cutbacks in capacity driven by reduced availability of reinsurance
• Wind deductibles as high as 15%
• Forced Wind sub-limits on many policies
• Significant rate increases, especially for coastal exposures
• Continued focus on appraisals to ensure property valuations are keeping up with
hyper-inflation
3
EPIC INSURANCE BROKERS & CONSULTANTS
2023 Property Market – A Look Back – cont.
• Higher rates, tightening of terms and conditions, reduced limits, and higher deductibles
• Insurance market set up to better withstand catastrophe loss activity
• 2023 saw record number (28) of CAT events >$1B
• Global insured CAT losses of $133B (less than 2022’s $165B, however historically high)
• U.S. Property & Casualty (P&C) industry’s net underwriting loss of $38B, a 10 year high,
per A.M. Best
• Personal lines at 110% combined ratio
• Commercial lines at 97.1% combined ratio
• P&C delivered operating profit due to boost in investment income
4
EPIC INSURANCE BROKERS & CONSULTANTS
U.S. Inflation-Adjusted Catastrophe Losses
6
EPIC INSURANCE BROKERS & CONSULTANTS
The 2020s are off to an ominous start
with $80B in average annual insured
losses
Average Insured Loss per Year
1980-2021: $23.8 Billion
2012-2021: $44.1 Billion
1980s:$5B
1990s: $16B
2000s: $27B
2010s: $37B
$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 22
Billions, 2020 $
Average for Decade
Hurricane
Andrew
WTC
Katrina, Rita,
Wilma
Notes: 2023 total is estimated figure through Q3.
Source: Insurance Information Institute.
Harvey, Irma,
Maria
Ian ($53B)
7
EPIC INSURANCE BROKERS & CONSULTANTS
• Natural disasters resulted in global insured losses of $108B in 2023
• Well above 10 year average of $89B
• Fourth consecutive year with $100B+ losses
• Swiss Re forecasting 5% - 7% growth in losses, driven by exposure growth, especially in
areas of higher catastrophe risk (e.g., flood plains and coastlines)
$-
$50
$100
$150
$200
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Losses in USD Billions
Year
Global Natural Catastrophe Insured Losses
$89B
$105B
10 Year Average (2013-2023)
5 Year Average (2018-2023)
8
EPIC INSURANCE BROKERS & CONSULTANTS
2024 Property Insurance
Market Overview
• Property catastrophe treaty reinsurance
pricing stabilized at January 1, 2024
• No further reductions in capacity are
anticipated
• Stable rate environment thus far in 2024
• Market operating in more calm, orderly, and
rational manner
• Less scrutiny of terms and conditions, with most
policies renewing with no change in limits,
deductibles, sub-limits, etc.
• Model-driven, analytics-based industry
continues to push importance of accurate
replacement cost valuations
• While a far more stable marketplace and
outlook, property market remains somewhat
fragile
The Impact of Inflation
• While the rate of inflation has
moderated, building costs
remain at a multi-decades
high, with continuance of
elevated labor, construction
materials, and transportation
costs
• Insurers remain hyper-focused
on accurate replacement
cost valuations
• Carriers utilizing AI to validate
values adequacy
• A building constructed for
$1M six years ago would cost
roughly $1.48M to build today
9
EPIC INSURANCE BROKERS & CONSULTANTS
Source: FM Global
1.00
1.07
1.08
1.10
1.35
1.47
1.48
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024
Hard Market to Soft Market Insurance Cycle
10
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.
Direction of market cycle can change
following a high-loss year.
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
Moving
towards
buyer’s
market this
year
Last year was
a seller’s
market
The Florida Factor
11
EPIC INSURANCE BROKERS & CONSULTANTS
Florida continues to be the most challenging catastrophe risk zone in the world
Hurricane Idalia only landfalling hurricane in Florida in 2023 storm season
Treaty reinsurance pricing has flattened out
Insurers being selective in providing their limited Florida wind capacity
Despite legislative reforms to Florida insurance laws, insurers remain concerned about
potential claim inflation, public adjuster activity, and legal climate within the state
While Florida should see a more stable market this year, the 2024 hurricane season will drive
future market trends
What’s Next?
With quiet hurricane season, and no other major catastrophe losses,
quick transition into soft market environment is possible,
however…
• El Niño conditions of 2023 quickly dissipating
• National Oceanic Atmospheric Administration’s (NOAA) Climate
Prediction Center indicating:
• 83% chance of shifting from El Niño to neutral by April-June
• 62% chance of La Niña conditions by June-August
• 2024 hurricane season
• AccuWeather forecast of “potentially explosive” season
• 20 - 24 named storms, including 8 - 12 hurricanes, and 4 – 7 reaching
Category 3 strength or higher
• Cited abnormally warm sea surface temperatures and La Niña
conditions
12
EPIC INSURANCE BROKERS & CONSULTANTS
State of the Liability Market
14
EPIC INSURANCE BROKERS & CONSULTANTS
Impact of Inflation
• Rising claim & operating costs before considering the impact of “Social inflation”
• Pressure on insurers reserve & rate adequacy
Social Inflation and Litigation Funding
• High, “catastrophic like” jury and judge verdicts regardless of merit or facts of the case
• Unrelated 3
rd
parties seek out and fund the litigation in return for a portion of the lawsuit recovery
• Since 2016 there have been over $30 billion in claims driven through litigation funding
• An additional $2.7 billion of investment in the litigation finance industry was committed in FY23
Law Enforcement Liability (LEL)
• Increased frequency and severity of litigation
• Civil lawsuits as redress (versus criminal) resulting in large settlements
• Reduction in availability of coverage at substantially higher costs/attachment points
Automobile Liability Trends
• Auto rates have increased for 22 consecutive quarters and still appear to be inadequate
U.S. Inflation Rate: 2009-2025F*
Source: U.S. Bureau of Labor Statistics; Wells Fargo Securities (10/23); USC Center for Risk and Uncertainty Management.
Percentage Change (%)
0.1%
1.3%
2.1%
2.4%
1.8%
1.2%
4.7%
8.0%
4.2%
2.5%
2.4%
-0.4%
1.6%
3.2%
2.1%
1.5%
1.6%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
09 10 11 12 13 14 15 16 17 18 19 20 21 22 23F 24F 25F
There’s concern that the
Fed may need to keep
rates higher for longer to
achieve its 2% inflation
target
*Annual change in Consumer Price Index for All Urban Consumers (CPI-U).
Inflation accelerated
sharply in 2021 before
peaking at 9.1% in June
2022. Inflation should
moderate through 2023/24;
Forecast is highly
dependent of trajectory of
energy prices, Fed rate
hikes and labor market
tightness
15
Social Inflation: Many Interrelated Causes, Difficult to Manage
Source:Risk and Uncertainty Management Center, Univ. of South Carolina, adapted from Verisk “Social Inflation” presentation (2020).
INSURANCE CLAIM COSTS
Increasing
Propensity
to Sue
Size of Jury
Awards
Courts/
Juries
Favoring
Plaintiffs
Growing
Distrust of
Large
Orgs.
Litigation
Financing
Aggressive
Plaintiff Bar
Ads
Changes in
Regulatory and
Legal Environment
Bar Ads
Applied to a seemingly limitless number
of issues, these drivers are pushing tort
costs (and therefore claim costs upward)
16
Average Jury Awards, 1999 – 2020 (latest available)
$725
$747
$756
$800
$799
$1,018
$1,022
$950
$1,077
$1,046
$654
$806
$1,098
$1,010
$1,042
$1,135
$1,354
$1,813
$1,675
$1,758
$2,449
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1999 2001 2003 2005 2007 2010 2012 2014 2016 2018 2020
Source: Jury Verdict Research; Current Award Trends in Personal Injury (61
st
Edition), Thomson Reuters; Risk and Uncertainty Management Center, Univ. of South Carolina.
The average jury award
reached an all-time record high
of $2.5M in 2020, up 39% from
2019 and 274% since 2010
Median Award in 2020 =
$125,366 (a record)
($000)
17
General Liability – Direct Premiums per $1M of GDP per State
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
2018 2019 2020 2021 2022
US
FL
• FL General Liability Direct
Premium rate per $1M of FL
Gross Domestic Product are
notably higher compared to the
U.S. average, AL, CA, GA, SC &
TX
• FL GL Rates peak in 2021
• It will be interesting to see the
impact of FL 2023 tort reforms
CA
TX
GA
SC
Sources:
GDP: USAfact.org
Premium Costs: S&P Capital IQ from NAIC Filings
AL
18
5 Forces Driving Commercial Auto Insurance Costs
5. Inexperienced Drivers
• Resignations and retirements leading to a shortage of
commercial drivers
4. Vehicle Repair and Replacement Costs
• Autos have become 24% more expensive to repair since
2019 – technology, labor, advanced materials
• Used car prices were up almost 50% in 2023 when
compared to the average between 2015-2019
• Increase in auto thefts
3. Distractions and Impairment
• Vehicle infotainment systems and mobile devices
• 30% of companies surveyed reported employee crashes
due to distraction
• Deaths due to preventable crashes up 15% versus pre-
pandemic levels
2. Attorney Involvement
• Increased legal representation
• Higher expenditures for medical
procedures and treatment
1. Bodily Injury Loss Costs
• Severity of loss is up 40% between 2018-2022 due to:
o Increase in deadly accidents
o Rising verdicts
o Increases in Medical Cost Inflation: +5.5% in 2022, +6%
in 2023, +7% forecast in 2024
Travelers – 5 Forces Driving Commercial Auto
19
20
Collision Claim Severity: Rising to New Record Highs
$4,086
$3,764
$4,113
$4,206
$3,978
$4,460
$4,392
$5,045
$5,392
$5,744
$5,392
$5,585
$5,945
$5,995
$5,601
$5,678
$3,836
$4,521
$3,073
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
19:Q1 19:Q2 19:Q3 19:Q4 20:Q1 20:Q2 20:Q3 20:Q4 21:Q1 21:Q2 21:Q3 21:Q4 22:Q1 22:Q2 22:Q3 22:Q4 23:Q1 23:Q2 23:Q3
Average Loss, 2018:Q1 through 2023:Q3
Source: ISO/PCI Fast Track data; Center for Risk and Uncertainty Management, Univ. of South Carolina.
Severities Are Up Sharply—Inflation Is a Major Factor
Collision claim severity reached a
record high in 2023:Q1, up 42.6%
from 2020:Q1
Q3:2023 Collision claim
severity is still up 35.0%
since Q1:2020
State of the Workers’ Compensation Market
21
EPIC INSURANCE BROKERS & CONSULTANTS
The most stable line of coverage in the Casualty marketplace. However, it has been
impacted by:
• Medical Cost Inflation
• Wage Inflation
• Decreasing frequency; Increasing Severity
• Survival/Life Expectancy – due to medical advancements, survival rates and life expectancy have increased
• Fee Schedule Costs – ICU, durable medical equipment and new state-of-the-art attendant care is not covered by
the fee schedules
• Comorbidity – disease coupled with injuries escalates claim costs
The Public Entity risk profile for Workers’ Compensation has become more volatile
• First responders
• Pandemic impact on Public Entities Workers’ Compensation
• Legislation - Presumption
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
Jan
20
Mar
20
May
20
Jul
20
Sep
20
Nov
20
Jan
21
Mar
21
May
21
Jul
21
Sep
21
Nov
21
Jan
22
Mar
22
May
22
Jul
22
Sep
22
Nov
22
Jan
23
Mar
23
May
23
Jul
23
Change in Medical CPI
CPI-All Items
Medical Cost Inflation vs. Overall CPI Since COVID,
Jan. 2020 – July 2023 (Percent Change from prior year)
Sources: US Bureau of Labor Statistics; Risk and Uncertainty Management Center, University of South Carolina.
Jan 2020 – Feb 2021
Medical: 3.8%
Overall: 1.3%
COVID has completely flipped the
historical relationship between
overall and medical inflation
All Items CPI
July 2023: 3.2%
Medical Inflation
July 2023: -0.5%
Mar 2021 – Nov 2022
Medical: 2.6%
Overall: 6.8%
Jan 2020 – Dec 2022
Medical: 3.1
Overall: 4.6%
22
Annual Change in Average Hourly Wage, 2007– Sept. 2023
3.0%
3.1%
2.8%
1.9%
2.1%
2.3%
2.6%
2.5%
3.0%
3.1%
4.9%
4.2%
5.3%
4.9%
4.4%
4.6%
4.2%
4.4%
4.3%
4.4%
4.4%
4.3%
4.2%
2.1%
1.9%
2.0%
0%
1%
2%
3%
4%
5%
6%
07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Q4
22
Jan
23
Feb
23
Mar
23
Apr
23
May
23
Jun
23
Jul
23
Aug
23
Sep
23
Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research
(recession dates); Risk and Uncertainty Management Center, Univ. of South Carolina.
Wage growth acceleration
obscured the massive loss in
WC payroll exposures in 2020
Wage growth fell
sharply during the
Great Recession
Very tight labor
market drove wage
gains in 2022 and
early (Peak was 5.9%
in March 2022)
23
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2018 2019 2020 2021 2022
Workers’ Compensation
Direct Premiums per $1M of GDP per State
US
FL
• Florida has historically had higher
workers’ compensation rates than
the national average
• Florida’s rates have reduced to be
closer in line with the United
States average
CA
GA
SC
AL
TX
Sources:
GDP: USAfact.org
Premium Costs: S&P Capital IQ from NAIC Filings
24
Workers Compensation
Loss Cost
Per $100 of payroll
5.96
5.23
3.69
3.11
2.98
1.38
Georgia
California
Florida
Alabama
South Carolina
Texas
We aggregated the loss costs of public
service jobs like firefighters, police
officers, and sanitation workers.
Florida’s public service jobs have the
third highest loss costs among the
states analyzed.
Job Type
GA
FL
TX
AL
SC
CA
Fire
Department
7704
7704
7710
7711
7710
7711
7710
7711
7710
7711
Police
Department
7720
7720
7720
7720
7720
7720
Sanitation
Department
9403
9403
9403
9403
9403
9403
Job Codes
Source: NCCI, State specific Department of Insurance
25
Florida Legislative Updates
26
EPIC INSURANCE BROKERS & CONSULTANTS
SB 362 – Medical Treatment Under the Workers’ Compensation Law (effective 1/1/25)
Increases max reimbursement rates for all industries:
• Certain physicians from 110% to 175% of the Medicare rate
• Certain surgical procedures from 140% to 210% of the Medicare rate
• NCCI has estimated +7% impact on WC costs in Florida due to this change
SB 808 – (Heart & Lung Presumption) Treatment by a Medical Specialist (effective 10/1/24)
Expand physician access to allow the use of their physician of choice
• Limited to firefighters, law enforcement, and correctional officers
• Some physicians may charge up to 200% of the Medicare reimbursement rate
Other Presumptions:
Firefighter cancer presumption – 2019
• An alternative to the firefighter pursuing benefits through workers’ compensation
First Responder Post-Traumatic Stress Syndrome (PTSD) Presumption – 2019
• Bill was amended to include notice limitations (52 weeks after the qualifying event)
• The cost of PTSD presumption is hard to quantify due to the large number of municipalities that are self-insured
27
EPIC INSURANCE BROKERS & CONSULTANTS
THANK YOU
Questions?
