Updated as of 12/9/2024
Overall Outlook
Not much has changed since our midyear outlook in July of 2024, and as we enter 2025, the industry continues to grapple with two major risk issues: extreme weather and legal system abuse.
According to the WTW Insurance Marketplace Realities 2025, the commercial insurance market remains under significant strain on property (that is catastrophic-prone) and auto, which continue to experience historic loss levels. These challenges are affecting both the availability and affordability of insurance for clients. Additionally, general liability and umbrella policies are seeing upward rate trends, as litigation abuse activities increasingly impact these lines of coverage.
On a more positive note, management liability, cyber insurance, and workers’ compensation remain stable. Here, we anticipate continued adequate capacity and consistent rates–a welcome offset to rising premiums in other areas. Notably, despite the rise in cyberattack activity, cyber insurance remains a good value. If you have not yet purchased cyber insurance or updated your coverage to reflect evolving risk, we strongly recommend prioritizing this analysis in 2025.
Outlook By Line of Coverage: Property
The 2025 property insurance premium forecast predicts a wide range of outcomes. Renewals this year should stabilize for high-quality risks with favorable loss experience and no catastrophic exposure. However, stressed properties and those located in CAT (catastrophe-prone) areas – where the likelihood of severe losses with significant financial impacts is higher – will face another year of double-digit increases.
PROPERTY RATE FORECAST
| High-quality risk, limited CAT exposure and favorable loss history, and adequate property limits | -5% to +5% |
| Poor quality risk, CAT exposure, and/or unfavorable loss history, and frame construction | +15% to +25% or more |
Trends to Watch:
- The rise of severe convective storms (SCS) continues to lead the market in aggregate losses ahead of hurricanes. At a minimum, we expect insurers to continue to push for percentage deductibles for SCS and possibly submit these coverages, regardless of an account’s specific geographic footprint. Note that a SCS is a relatively new household word defined as “a local storm, produced by a cumulonimbus cloud and always accompanied by lightning and thunder, usually with strong gusts of wind, heavy rain, and sometimes with hail”.
- Insurers remain focused on adequate insurance-to-value (ITV), and we expect this to be considered the “new normal” as the reinsurance market requires adequate valuations. Insureds with appraisals and other documented data have success with carrier confidence.
Data Table Showing Industrial Cost Factors:
| INDEX | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|---|---|---|
| ENR — Building cost index | 3.30% | 3.30% | 1.74% | 3.96% | 13.94% | 9.40% | 2.90% | 1.90% |
| FM Global — US industrial buildings average | 1.20% | 5.20% | 1.73% | 1.42% | 18.40% | 11.10% | 1% | 1% |
| RSMeans — 30 city average | 4.00% | 5.50% | 2.05% | 1.71% | 15.83% | 12.10% | 1.90% | 1.30% |
| Marshall & Swift — U.S. average | 2.7% to 3.7% | 3.2% to 6.0% | 0% to 1.3% | 3% to 6.1% | 16% to 24.5% | 11.10% | 1.04% | 1.20% |
Source: WTW Insurance Marketplace Realities 2025
- New on the horizon – insurers in certain regions are now including crime scores in their decision-making process.
- Adverse property market conditions continue to affect certain industries:
- Habitational real estate
- Waste and recycling
- High-hazard industries (e.g., paper and chemical)
- Frame construction risks (apartments, hotels, and senior living facilities)
Outlook By Line of Coverage: Casualty
Most casualty lines continue to experience premium and rate increases, driven by uncertain liability loss trends and a rise in various forms of legal system abuse. The frequency and severity of nuclear verdict trends– particularly in auto and product liability cases–are rising. These verdicts are being further fueled by third-party litigation funding, with annual investments expected to reach $31 billion by 2028.
While many clients should anticipate substantial rate increases for auto and umbrella liability, workers’ compensation remains flat, and general liability (GL) premium increases have decreased overall.
CASUALTY RENEWAL PRICING BY LINE OF COVERAGE
| Type of Coverage | 2025 Rate Forecast |
|---|---|
| General Liability | +5% to 10% |
| Auto Liability | +5% to 10% |
| Workers Compensation | Flat to +5% |
| Umbrella/Excess Liability | +8% to 25% |
| Foreign Liability | Flat |
| Directors and Officers | -5% |
| Employment Practices Liability | -5% to +5% |
| Professional Liability | +1% to 10% |
| Cyber Liability | -10% to +1% |
Trends to Watch:
- Severely challenged industries and exposures in casualty:
- Real estate and construction for habitational, residential, and social services
- Several manufacturing sectors, such as sports equipment, chemicals, firearms, and pharmaceuticals
- Healthcare
- Education and nonprofits due to sexual abuse concerns
- Per- and polyfluoroalkyl substances (PFAS) and forever chemicals
- Transportation
- Growing concerns around contingent third-party auto hauling liability: According to the IMR Domestic Casualty – WTW report, risks associated with hiring third-party haulers are increasingly becoming a focal point in underwriting discussions. This trend is driven by high-profile settlements and verdicts, some exceeding $20 million, in cases where plaintiffs allege negligent hiring or oversight by the contracting firms. An example highlighted in the report involves a company held liable for a subcontracted hauler’s accident, resulting in severe injuries and fatalities. As litigation strategies and case law evolve, plaintiff counsel continues to target contracting firms for “deeper pockets” and higher insurance limits. Insurers are responding by restricting coverage, such as excluding hired auto liability on general liability policies or requiring higher retention thresholds for these exposures.]
- Cyber insurance has stabilized, but challenges persist amid evolving threats. While the market saw stabilization through the third quarter of 2024, cybercrime threats, including ransomware activity, continue to rise. Underwriting decisions and pricing remain highly influenced by a company’s security controls. Despite increased precautions by organizations, ransomware attacks show no sign of abating. Looking ahead, carriers face ongoing challenges in addressing claims and losses from state-sponsored cyberattacks, as well as emerging exposures related to wrongful data collection, artificial intelligence, and new SEC regulations.
The BakerHopp Strategy
As your advisors in insurance and risk management, we are proactively prepared to work with you through any and all market adjustments. At BakerHopp Insurance Group, our core purpose is to contribute to the success of others— especially our clients. We understand that our role in your success is to provide transparent and competitive options with detailed information on changes in coverage and pricing so you can make informed business decisions. Our model of service below is the cornerstone of our capabilities:
Sources:
Risk Strategies, State of the Insurance Market Report, October 30, 2024.
WTW, Insurance Marketplace Realities 2025. Available at: https://www.wtwco.com/en-us/insights/2024/10/insurance-marketplace-realities-2025#table-of-contents