The insurance market is showing signs of softening, especially in the realms of property and casualty insurance and commercial insurance. While the hard market may continue through 2024, experts predict it will soften in 2025. Reinsurance may also increase by the end of the year, leading to softer market conditions in 2025. What does that mean for independent insurance agents? Here’s what to watch for in the second half of 2024 and going into 2025.
Property and Casualty Insurance
Some experts predict that property and casualty (P&C) insurance rates may soften yet in 2024, which could mean rates will level off or actually decrease. According to independent insurance brokerage and consulting firm Woodruff Sawyer, property premiums will likely continue to be moderate through 2024.
Woodruff Sawyer predicts P&C segments of the commercial lines market will only see single-digit percentage increases for the rest of 2024, just like in 2023. That’s likely due to inflation and catastrophic losses due to weather-related events. Whether that continues will depend on inflation, contractors making resilient buildings, and changes to reinsurance practices.
ALIRT Insurance Research believes broad P&C rates “will remain firm throughout 2024 and likely 2025.” However, they predict the rate of increase will gradually slow down and that, “there are reasons for optimism that price easing is on the horizon.”
Commercial Insurance
Within the commercial insurance market, Woodruff and Sawyer has noted that directors & officers (D&O) and cyber insurance have continued to be competitive over the first quarter of 2024. The probability of a public company facing a lawsuit is still higher than normal in 2024, continuing the trend from 2023. It had been decreasing since the end of 2019.
While cyber insurance is still less expensive due to increased competition keeping prices low, cyberattacks are increasing in frequency and scale. Ransom claims set new records in 2023, and the cost to businesses is also increasing. In fact, $1.1 billion global ransoms were paid in 2023, the largest volume in history.
Reinsurance
The reinsurance market is becoming more stable. As reinsurers have greater capacity and are able and willing to accept more risk, primary insurers may feel less constrained in their underwriting decisions.
Robert Mazzuoli, director of Fitch Ratings, predicted in January that reinsurance capacity would increase by the end of 2024, leading to a softening market in 2025. At the June 1 reinsurance renewals, property-catastrophe reinsurance rates had already dropped by 5%, according to Carrier Management.
As reinsurance capacity increases, primary insurers may be more willing to offer broader coverage terms, higher coverage limits, and lower premiums to policyholders, leading to a softer market environment in 2025.
This can lead to a more competitive marketplace with lower barriers to entry for new businesses.
Potential Benefits of A Softening Market
A softening insurance market can benefit independent insurance agents in several ways that may increase their earnings.
Increased Business Opportunities
In a soft market, insurance premiums tend to decrease, making insurance products more affordable for businesses and individuals. This can lead to increased demand for insurance coverage as companies seek to take advantage of lower rates and expand their coverage options.
Independent agents can capitalize on this increased demand by attracting new clients and generating more business.
Competitive Advantage
Independent agents can leverage the broader coverage options and lower premiums available in a soft market to offer more competitive insurance solutions to their clients. This can help agents differentiate themselves from competitors and attract clients who are looking for comprehensive coverage at affordable rates.
Commission Opportunities
While insurance premiums may decrease in a soft market, the volume of insurance transactions typically increases as more businesses and individuals purchase coverage. This can result in higher overall commission earnings for independent agents, especially if they are successful in attracting new clients and retaining existing ones.
Negotiating Power with Carriers
In a soft market, insurance carriers may be more willing to negotiate pricing and terms to retain their current policyholders and prevent them from switching to competitors. Independent agents can use this opportunity to negotiate on behalf of their clients and secure more favorable terms, thereby enhancing client retention and loyalty.
Insurers may also be more willing to negotiate pricing, coverage terms, and commission structures with agents to secure their business. As a result, agents may also be able to secure more favorable arrangements with carriers for themselves, improving their earnings potential.
Final Thoughts
Currently, it looks like the hard market is softening as we move to the second half of 2024 and look to 2025. Overall, a softening insurance market presents numerous opportunities for independent insurance agents to grow their business, attract new clients, and enhance client retention by offering competitive insurance solutions and leveraging their expertise to navigate the changing market landscape.