Swiss Re Institute’s closely watched insurance industry analysis predicts a much-improved 98.5% combined ratio for the US P&C market in aggregate in both 2024 and 2025, after 102.3% in 2023. As we will see below, personal lines are driving profitability and growth.

However, Insurance Insider US’ second-quarter analysis underscores what is a mixed picture. Clouds on the horizon include casualty loss-cost trends. Fears are also mounting that insurance industry reserve releases to date may prove premature, as Insurance Insider US reported when examining trends for the first half of 2024. Our analysis, drawing on S&P Capital IQ insurance industry data, shows Q1 net reserve releases at a record $3.1 billion.

The US P&C sector is forecast to achieve 8% direct written premium growth in 2024, slowing to 5% in 2025, down from almost 10% between 2021 and 2023, according to Swiss Re.

Insurance industry growth is led by personal lines, at 15% in Q1, versus 5% for commercial. Personal lines are also benefiting most from easing inflation. Swiss Re predicts an 11-percentage point decline in the aggregate personal lines’ loss ratio to 64%, versus a 3% decrease to 52% for commercial in 2024.

Within commercial, the casualty market in particular is showing signs of strain.

However, the aggregate US P&C return on equity is forecast to leap to 9.5% this year and 10% in 2025, from 3.4% in 2023, according to Swiss Re.

Reinsurers are continuing to enjoy strong returns, after recent portfolio remediation. Annualised returns on equity averaged around 20% in the first quarter, according to Aon research. However, rate growth is slowing and, like primary insurers concerns remain about casualty liabilities.

The E&S market is still outperforming the wider industry. However, property momentum may be beginning to decelerate. Growth is also slowing in the MGA sector, which has more than doubled by premium since 2015 to almost $90 billion of premium, or 9% of the total US P&C market.

Brokers, meanwhile, are enjoying an extended “super-cycle” period of solid earnings and organic revenue growth. They were the largest issuers of capital in the past year.

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ESG, and particularly climate, has become a regulatory battleground, with the shelving of the SEC’s new climate-related disclosure rules for public companies one notable example. The National Association of Insurance Commissioner, for its part, wants insurers to take a unified approach to mitigating climate risk and has made that one of its strategic priorities for 2024.

Meanwhile, in California, after an insurer exodus because of wildfire losses, Insurance Commissioner Ricardo Lara this year agreed to allow carriers to use catastrophe modelling when setting rates as part of his Sustainable Insurance Strategy. However, his concession over cat modelling comes with minimum premium requirements for distressed ZIP codes and these remain subject to debate.

From a liability perspective, important recent developments include legislation tackling workplace violence, including California’s Workplace Violence Prevention Bill, the first sector-agnostic law of its kind. The legislation gives workers’ comp insurers a critical oversight role.

Read more about regulatory changes and compliance in the P&C insurance industry by clicking here.

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The P&C insurance sector’s premium growth and progress on profitability have taken place amid significant change, including digitization, better deployment of data and analytics, and new distribution strategies.

Among emerging insurance industry trends, generative AI takes center stage, even though most carriers haven’t yet worked out what to do with it. A recent EY CEO Outlook Pulse survey found 58% of insurance chiefs believed it was a force for the good and 52% planned significant AI investment. Elsewhere, ESG is influencing strategy, and attracting pushback, while risk management and other add-on services are among carriers’ differentiation tactics.

The arrival of ChatGPT in November 2022 instantly ignited (re)insurers’ enthusiasm about gen AI’s potential, particularly for cost savings.

The technology is a vast step-up from its machine learning predecessor and needs just a few instructions to make accurate predictions and generate original content at speed.

Before considering the impact of AI on the commercial landscape, it's worth noting that in personal lines, gen AI is more easily deployable because of the line’s more commoditised nature. However, the potential for inherent biases in the data remains a key danger.

EY recently found that insurers are using gen AI virtual assistants to improve experiences for customers and other stakeholders; to unlock efficiencies by synthesizing large volumes of content, particularly in the claims cycle; and for automated compliance monitoring.

However, within commercial insurance, an as-yet-incomplete digitization process is hampering gen AI adoption.

An Oxbow Partners’ survey discovered that specialty insurers and reinsurers weren’t very advanced in their use of it. Some 80% of those surveyed cited “other strategic objectives” as a barrier. The most common use case being explored was querying large datasets, with underwriting, and data augmentation coming next.QBE is among companies already using it for underwriting, though its Cyber Underwriting AI Assistant to speed the initial review of broker submissions.

Be sure to check out this page to get the latest reports on AI utilization across the P&C insurance industry.

Concern about climate change, and other environmental and social issues, mistrust of corporations, inflationary pressures, and a desire for a technology-enabled ecosystem of services are among the factors driving consumer preferences.

PwC recently highlighted increasing consumer expectations for more than just risk transfer and noted an industry trend for personal lines insurers to use partners to provide adjacent services.

Insurance industry statistics are instructive. Deloitte in a report on the future of home and motor insurance found a strong consumer appetite in the US for parametric-type home insurance products, with 51% deeming this an extremely or very desirable feature.

US consumers also placed a premium on home and motor insurance products they could control and easily adjust, with 57% citing this as extremely/very desirable.

That said, almost a third of US consumers still favoured what Deloitte term as “basic” home and insurance cover. American consumers were, however, less wedded to the old ways than consumers in the UK and Germany.

In terms of ESG, the EY Future Consumer Index recently found that 29% of consumers surveyed in the Americas ranked combating climate change as a top three concern, more than any other category. However, only 13% of the 22,000 consumers EY surveyed worldwide had upgraded insurance to cover natural disasters and 53% hadn’t thought about it at all.

The (re)insurance industry has taken the role of sustainability steward since the Paris climate accord of 2016, but the path has been rocky. The Net-Zero Insurance Alliance failed amid anti-ESG threats from Republican state attorneys. Meanwhile, as discussed above, industry lawsuits forced the SEC to pause climate disclosure rules.

The new UN-brokered Forum for Insurance Transition to Net Zero is in its infancy but it’s clear that insurers are further ahead in incorporating ESG principles in their investment strategy than in underwriting. A recent PwC survey found only 45% of insurers consider ESG to be a very important factor in underwriting.

In terms of the “s” part of ESG, diversity, equity & inclusion (DE&I) targets are not mandatory but regulators including the NAIC are watching closely and DE&I principles increasingly underpin corporate values. Progress has been made – most notably on gender: US Bureau of Labor Statistics figures show that in 2023, 56.9% of insurance underwriters and 54.9% of insurance sales agents were female. However, 77.3% and 80.6%, respectively, were of white ethnicities.

In terms of underwriting, ESG risk for carriers is multi-faceted, with D&O policies among the most vulnerable if company executives are deemed to have responded inadequately to mounting requirements and expectations, and equally if (re)insurers’ “ethical” investments prove a flop.

To stay ahead of ESG developments and trends in the P&C insurance industry, check out this page.

Our insurance industry report has already touched on some of the strategies carriers are using, including digitization, gen AI, deepening consumer engagement through add-on services, and using MGAs. Below we look at other initiatives, including mergers and acquisitions, which are making a marked comeback among balance-sheet businesses after a fallow period.

Technological developments, changing consumer habits and business practices, and evolving risk exposures are all stoking innovation.

In personal lines, demand for more bespoke, and comprehensive coverage, including access to an ecosystem of related products; and societal changes such as the sharing economy are driving change.

In auto insurance, for example, usage-based car insurance is now offered by multiple carriers including market leader State Farm after a pandemic-era take-off. The now well-established use of telematics is also facilitating usage- and driving behavior-based policies and premiums. On the near horizon, the liability shift associated with autonomous mobility will mean more change.

In homeowners,’ Allstate led the way in offering home-share insurance, while connected technology is facilitating usage-based policies that reward the thrifty. Developing data privacy regulations, however, will serve as a counterweight in this area.

A demand for flexibility is common to personal and commercial insureds, with the latter increasingly able to adjust limits quickly associated with their annual policies. In the highly inflationary environment we have just exited this feature was particularly beneficial.

Cyber insurers such as Corvus and At-Bay’s Stance are among those burnishing commercial insurance’s credentials as a genuine risk-management partner, while in the SME segment tech-enabled, simplified products such as Berkshire Hathaway’s Three aim to close the protection gap.

Distribution is also a rich seam of commercial-insurance innovation, with AI-powered platforms such as IBynd enabling quote and bind in just minutes.

You can see more about the latest emerging technologies and how the P&C insurance industry is responding to them by clicking here.

In the property cat sector, portfolio realignment to mitigate risk has spread in recent years from the retro market to reinsurers and now to primary insurers, who had already begun lifting rate but had to revisit this after the 2023 reinsurance market turn.

Severe cat losses at the end of the last decade forced retro providers to reconsider attachment points. Reinsurers followed, to protect themselves from hard-to-model secondary perils such as floods and convective storms and as a result, as our insurance market report discussed earlier, have led the sector’s return to profitability. Now primary property insurers are having to rethink rates, coverage and terms and conditions to withstand attritional losses, but tight regulatory oversight means the process will be slow. The nuclear risk-management option is retreats from certain lines and geographies, something that has hit wildfire-prone California hard.

Technology is also changing risk management.

Augmented and virtual reality is assisting risk assessment, particularly in property insurance, and data analytics and predictive modelling is facilitating more informed portfolio selection and rates and terms. Gen AI looks set to turbocharge such benefits.

All that said, the human dimension remains critical. At 2024’s Insurance Insider US New York City Conference panellists agreed that more effective communication between insurers, brokers and buyers, alongside improved data collection, is the key to future risk management.

Whether you need to stay up-to-date on cat losses or changing technologies, our experienced reporters are constantly monitoring emerging risks. Ensure you get this intelligence on market dynamics and trends first—see the latest coverage here.

After a prolonged M&A drought, amid high borrowing costs, and economic and geopolitical worries, (re)insurance dealmaking is accelerating. It allows acquirers to access, variously, new technology, geographies, product lines, specialist know-how, and capital and operational efficiencies, and, increasingly, to advance ESG goals. Sellers gain an exit opportunity, and cash to return to investors or deploy elsewhere.

The US P&C insurance industry has significant consolidation potential. NAIC figures for market share among the top 25 carriers show the leader State Farm having under 10%, with Progressive, the number two, having 6.5%.

Recent notable deals include RenaissanceRe’s  purchase in 2023 of Validus Re from AIG for $3 billion in reinsurance; in the primary segment, Arch’s deal this year to buy Allianz’s US MidCorp and Entertainment businesses for $1.4 billion to seek mid-market growth, and in legacy, Enstar’s $5.1 billion sale to alternative asset manager and existing shareholder Sixth Street.

In the MGA and broking sectors dealmaking continued throughout the wider M&A slowdown. Aon’s recent purchase for $13 billion of mid-market specialist NFP was a stark contrast to the habitually small and mid-market distribution deals. It came three years after the abandonment of Aon’s $30 billion tie-up with Willis after Department of Justice intervention.

From sales processes to deal values, we get M&A intelligence before anyone else. Don’t miss the opportunity to capitalise on Insurance Insider US’s actionable M&A insights—click here to see the latest.

If our insurance industry report has highlighted one thing, it is the complexity of the P&C sector. Dealmaking to advance strategy, product innovation, changing distribution models, gen AI, climate change risks, and the challenges and opportunities of ESG are among the multiple forces shaping this dynamic industry.

Insurance Insider US will help you navigate the complexities of the market with exclusive news, in-depth analysis, and actionable insights that you can trust. Click here to subscribe to Insurance Insider US today.

Last updated: August 2024