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Market Must Resist Pressure to Compromise on Rate Discipline

During the intense phase of Covid, it was much simpler for clients to renew with existing brokers and carriers than go elsewhere, but as the economy picks up, that is changing.

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This article was originally published by Insurance Day.​​​​​​​

By Gary Grose, President, Commercial Specialty

Looking back over the past year, we have seen a predictable course developing across the US property/casualty (P&C) insurance markets. The lines where we were seeing serious rate increases, such as cyber or property, have held very strongly, with a commitment from leadership teams to underwriting discipline.

They continue to be impacted by large losses and along with price discipline, we see insurers delving ever more deeply into the data – particularly the claims data – to understand and mitigate the effects of catastrophes such as Hurricane Ida, the storms in the northern US, cyber incidents, as well as the fallout from increasing litigation in areas such as D&O and management liability.

It is particularly fascinating to watch the group of lines that were initially able to gain some rate but are now facing pressures from some rate depreciation. It is important to note that rates are not plummeting, but they are coming down in increments, and the reaction to this is one of the most interesting areas to observe in our market.

Capital continues to come in, new entrants arrive, and businesses reach a difficult inflection point where previously disciplined underwriters have to decide how much they are willing to compromise on pricing and terms and conditions. Holding your limits and the ability to walk away from top line growth in favour of genuine profitability become critical for underwriters.

Short-term pressures

This is where companies with excellent underlying claims data to back up their decisions, and the human capital – the truly knowledgeable, analytical and wise team members – are able to maintain discipline and keep their focus on the long term, rather than succumbing to short-term pressures.

As we all know, there are hills and valleys along the path of every business line in this industry – there will always be gains and losses – and the question inevitably comes back to whether a company is in this for a significant period of time.

Support from senior leadership, reassuring underwriters that they back them in staying firm in their decisions, is also vital.

Needless to say, pressure is coming in from insureds. Brokers have outlined market conditions and why costs are rising. But if the insured is expecting a 10% rate increase and what actually transpires is 20% or more, that becomes a more difficult conversation. Risk managers and chief financial officers going back to their management and boards can justify increases for a year or two, but the pressure on them will grow as time goes on to get those rates back down.

The challenge for them and the balance that underwriters must achieve is that we now are seeing inflation taking hold across the globe in a way that we haven’t seen for a long time. As they say, if all the boats are rising, whether that’s goods or services, then it’s to be expected that insurance premiums will also remain relatively high in the short and medium term.

Adding to the equation is the capital that I, and many others, believe will continue to flow into the insurance industry. In the wider financial markets, pension, retirement and mutual funds still face the challenge of finding a higher rate of return for their investors.

They are unlikely to start pulling away from equity funds buying into insurance, where they can see that they will get a good return on their investment. The baby boomer generation is retiring in large numbers and looking for outsize returns for their pension, so that pressure is unlikely to abate any time soon.

There could be disruptive moments such as large-scale cyber-attacks, continued outsized property losses, particularly stemming from climate-related issues and those could lead to some rearranging, some company departures from specific lines.

But it is likely that withdrawal of funds will be offset two to three times by the amount of capital flowing into environmental, casualty, professional liability coverage and so on. Those lines perceived as unlikely to suffer such large losses will continue to be regarded as a safer option and the equity will stay. All of this means that underwriters will need to keep steady and consistent in their approach.


It is not possible to consider P&C insurance over the past 12 to 18 months without taking into account the Covid-19 pandemic impact on market dynamics. For a large part of that time, the market was working out how to handle existing risks that were already in the market – areas like construction, which saw a meaningful slow down. But more interestingly now, it seems that the world is working hard to get back to where we were. There is effectively a race to see who can be in the front line as construction work starts to speed up again or businesses restart.

Similarly, during the intense phase of the pandemic, the insurance industry saw an extraordinary amount of renewal business staying where it was. Clients were so busy with Covid-19 that it was much simpler to renew with existing brokers and carriers than change. However, as the economy picks up, it is likely that insureds will return to a more thorough evaluation process. The companies that can make that process transactionally easier will certainly have an advantage. We are already seeing this beginning – a flurry of changes in brokers and carriers across the professional liability lines, casualty and construction.

Other impact on the market will also come in the final shape of the US infrastructure bill, as will the courts coming back to full capacity, facilitating lawsuits and legal action. Across all industries and insurance lines, there is no doubt that the companies who are first out of the gates when events settle down will have an advantage. Carriers who have good data, analytics, disciplined underwriting and calm leadership heads will be strongly positioned to do well.

Gary Grose is President, Commercial Specialty at Argo Group

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