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The insurance markets have reached a level of unprecedented difficulty, leaving much to be desired in predictions for the coming new year. Strains have been felt in industries across the board. Impacts stem from economic hardship such as supply chain limitations and rising inflation as well as legislative limitations.
Narrowing markets are expected to continue in the coming year while long-term solutions are sought. At M&G, we are prioritizing proactive communication with our clients while leveraging strong carrier partnerships to advocate for solutions. Additionally, we’re actively a part of the conversation seeking legislative action to bring relief to our state.
While current trends are expected to tighten further before relief is felt, we are poised to tackle the coming challenges and remain at the forefront of advocacy.
It’s been a tumultuous year for California’s insurance industry.
Market shifts and trends seem to be reinventing themselves rather than returning to old norms in a post-pandemic world. Significant inflation rates, legislative limitations, and unstable economics are exacerbated by a shift in workforce demands and supply chain disruptions.
While much remains uncertain, we at Morris & Garritano are staying informed and providing proactive communication to our clients as we advocate for market stability. As we round the corner into the new year, we look ahead at market trends and set expectations for the coming year.
Various industries across California’s insurance markets are facing unprecedented difficulties in a hardened, narrowed market where coverage is being offered at steep premiums, if it can be found at all.
Increasing property rates, wildfire surcharges, non-renewals, and other restrictions have become prevalent in California’s property and homeowner insurance market. Dry weather conditions continue to make property risky and expensive to cover, with mitigation strategies proving unclear and frustrating.
Further compounding coverage difficulties, supply chain issues and inflation rates are causing disruptions to other insurance markets as well. Products are more expensive to build and repair.
Agriculture and viticulture companies are seeing strains as prices for supplies and equipment are up, pushing production costs to rise.
Similarly, the auto industry is facing increased costs for replacement parts and labor combined with an increased number of liability claims from auto accidents. Carriers are paying more to cover claims causing rates and premiums to rise.
These costly conditions are causing many carriers to contract, imposing tighter restrictions on policies or mandating large down or full payments. Many carriers are at capacity with some ceasing to write policies in California altogether, leaving clients with non-renewals.
“There’s a huge lack of competition in the market,” says Commercial Advisor and Regional Vice President of Southern California, Mark Anelli. “There’s no new, viable options leaving less carriers to cover more risk.”
CA is seeing an increase of risk with a decreased level of carriers and underwriters willing to share the burden. This is placing a lot of pressure on the industry causing hard market conditions to be worse than usual.
At M&G, we’re working through solutions to provide stability for clients by communicating with our carrier partners and advocating for legislative reform to find long-term relief and market stability. Until the CA Department of Insurance acts on carriers’ requests for rate adjustments, we will continue to be impacted by these restrictions for the foreseeable future.
Mark comments, assuring clients that, “As we navigate these uncertain times, we will continue to provide our clients with the support they need and remain hopeful about the opportunities for positive change in the coming year.”
Cyber Security continues to be a top concern for businesses as dependence on digital technology is steadily rising. While premiums remain high, increases, however, are trending downward. Q3 this year saw a 20.3% increase compared to 26.8% in the previous quarter and a record high of 34.3% in Q4 2021.
Claims for cyber-attacks remain high as well, as the sophistication of ransomware attacks continues to increase. Criminal extortion in cyberspace is becoming more complex and is often carried out by agile networks executing an expanding repertoire of tactics. According to Coveware, in Q3 2022, the average ransom payment increased 13.2% from Q2 2022 to $258,143. While the average was pulled up by several outliers, the median ransom payment actually increased to $41,987, a 15.5% increase from Q2 2022.
While it’s the huge corporations that make the news, small to mid-size companies are low hanging fruit for cyber criminals since they often lack robust security measures.
Nick Sullivan, Risk Management Director at M&G, comments saying, “The continuing trend of cyber attacks on operations of all sizes has pushed cyber protection from an ancillary line of coverage focused on third party liability of sensitive information to a critical element of any insurance and risk management program offering first party protection and bridging gaps that traditional property and crime policies were not designed to cover.”
As risk and demand continue to rise, policy holders can expect greater minimum controls to qualify for coverage. We’ll see a greater prevalence of coverage limitations such as ransomware sublimits, coinsurance provisions, shorter indemnity periods for business interruption, and social engineering call back provisions in the coming year.
Directors and Officers will come under more scrutiny from stakeholder groups when it comes to cyber resilience and privacy compliance. We can expect carriers to reconsider their cyber terrorism and war exclusions to build more clarity around what is excluded during systemic issues. Federal backstop discussions continue regarding catastrophic cyber incidents, and we will see greater enforcement and expansion of state consumer privacy regulations such as the CCPA (2020) and CPRA in California becoming operative in 2023.
Nick discusses the agency’s approach going into the New Year. “We are continuing to highlight the benefits and importance of cyber insurance with clients,” he says. “We’re anticipating pricing and coverage restrictions and having proactive conversations around cyber hygiene in an attempt to combat these market developments.”
He continues, adding, “By working with our cyber insurance partners, we can secure options and compare critical policy provisions. No two cyber policies are the same, making coverage expertise and analysis ever more crucial.”
Cyber risk is going to continue to rapidly evolve as reliance on technology and digital connectivity increase across the board. Going into 2023, all businesses should be aware of their exposure and take proper steps to harden their cyber risk management protocols.
The healthcare and health insurance markets typically see rate increases year over year but, in 2022, these markets experienced less than expected, considering the significant impacts of inflation.
Experts have expressed concern citing carriers’ contracts with hospitals and doctors that often lock in set price points for a three-year term, limiting the ability of hospital systems to properly adjust pricing in response to economic pressures.
Ben Hoover, Sr. Employee Benefits Advisor & Practice Leader at M&G, comments explaining, “When adjustments lag like this, it can delay the financial recovery of the industry. The strains of the current inflationary period may not be felt for years later.”
Some health systems, such as Kaiser, that operate in an all-in-one HMO model where the hospital is associated with the insurance carrier, are able to react quicker. These systems have issued increases at significantly higher rates, leading us to believe they’ve been able to address the inflationary impacts quicker than others who are bound by stricter contracts. “These rate increases could be foreshowing what’s to come from traditional carriers in the near future,” Ben says. “It’s something we’re keeping a close eye on.”
With little movement at the federal level for long-term reform or relief, more pressure is being put on individualized states to pursue legislative adjustments. At this time, however, there is little change on the horizon within the California system as the combined Covered CA, MediCal, Medicare and employer sponsored programs are covering much of the population in the state with few going uninsured.
With this in mind, our advocates are entering the coming year committed to transparency and proactive communication with our clients. More than ever, we’re dedicated to remaining trusted advocates and providing peace of mind while we navigate this current environment and its challenges.
Competition for recruiting and retention remains in favor of the candidate. With 1 worker for every 1.7 jobs, workforce shortages are giving increased negotiation power to the available talent, who is continuing to push for a greater humanization of the workplace.
Employee expectations have evolved from last year’s demands for increased empathy from employers into tangible requests for flexibility to accommodate personal priorities, mentorship providing career growth, and personal development.
Employers will need to make a real culture shift to meet these demands as workers are more willing to make a transition if alignment is not met within their organization.
Base pay expectations typically rise year over year, but candidates today are requesting significantly higher minimum rates of pay. Inflation, economic strain, and the post-pandemic, candidate-driven market have shifted expectations for compensation. Workers have grown used to the competition leaning in their favor and are finding increased confidence in negotiations.
In 2023, California will begin enforcing new transparency laws intended to help recruiters and candidates alike see realistic salary ranges, ideally easing tensions in negotiations. Employers should anticipate this new legislation and plan appropriate action in their recruiting and retention efforts.
The post-pandemic world has led workers to rethink their priorities, and they are now placing a higher emphasis on paid time off and other flexibility-enablement benefits to accommodate familial and personal needs.
Additionally, expectations for remote or hybrid work opportunities have also increased. Workers are seeking greater flexibility, a higher quality of life, and a better work-life balance.
While candidates are showing a greater willingness to relocate for work, they are still reluctant to return to the traditional office. These trends are unlikely to revert as more and more companies are finding success in pivoting to this new landscape of digital-based work environments.
Finally, candidates are seeking positions that provide personal and professional development with clear growth opportunities.
While larger organizations are encouraged to foster long-term retention, smaller businesses have a unique opportunity to serve as a springboard, positioning themselves as a foundation for emerging talent. “Investing in your workforce by providing mentorship and growth opportunities, smaller organizations can cultivate a reputation that drives a goal-oriented and vision-driven workforce,” explains Susan Appel, Corporate Recruiter at M&G. “Even if the retention period is shorter, the inflow of talent will be stronger, benefiting everyone in the long run.”
Overall, the hiring market is still difficult, but remains optimistic. Change will be necessary in order to meet the evolving demands of the workforce, and performative gestures will not be tolerated.
“The growing pains of the market will likely be worth it in the long run,” Susan encourages. “By purposefully creating a desirable company culture, businesses can distinguish themselves and foster a workplace where employees feel invested in. This in turn will generate positive results shared by both the employees and the business as a whole.”
As consumers ourselves, we at M&G have felt the frustrations that this fragile marketplace brings. And as insurance brokers, we also understand that for insurance companies to remain able to pay claims, they must collect the appropriate premiums.
Our teams are dedicated to assisting our clients with the best guidance and solutions possible. Personal Lines Manager, Erin Powers, affirms the market difficulties but offers assurance saying, “We are in this together and will strive to keep our clients apprised of the changing landscape.”
“Communication as far out as possible is key, not just with our clients but with our underwriters as well,” adds Commercial Risk Advisor, Daniel Gilman. “Our long-standing carrier relationships and strong reputation for being trusted advisors brings comfort to underwriters, which yields value back to our clients.”
Despite the ongoing difficulties, our team at M&G is keeping the care and wellbeing of our clients front of mind. “They’re the ones we are working for, day in and day out,” Daniel affirms. “We’re their advocates and advisors and that’s in the front of our mind.”
Whatever the next year holds, we are dedicated to working through the challenges. We’re actively pursuing short-term solutions for stability at the client level while also working with carrier partners at a macro level on bringing long-term stability to the larger marketplace.
Insurance has a long, predictable history of going through hard and soft market cycles, but the current challenges will likely take a longer time to untangle before stability is found. We remain hopeful that California’s insurance markets will reemerge as competitive marketplaces in the future and are committed to advocating for such reform.
Entering the new year, our team at Morris & Garritano is poised to tackle the challenges and continue our work to advocate for clients and provide peace of mind for generations to come.