Navigating the Impact of Recession and Pandemic on Property/Casualty Underwriting

Pandemic and Recession: A Double Whammy for P/C Industry

The COVID-19 pandemic and the subsequent recession have created a challenging environment for the property/casualty (P/C) insurance industry. According to the latest report from the Insurance Information Institute (Triple-I) and Milliman, the industry is expected to see no premium growth in 2020 and a deteriorated combined ratio, a key measure of underwriting profitability. The combined ratio is projected to rise to 102 by year-end, up from 99 in 2019. This deterioration is largely driven by the reduction in exposures in personal auto and several commercial lines due to the pandemic.

Flat Premiums and Rising Rates: The New Normal?

The report highlights that direct and net premium written will remain virtually unchanged from 2019. However, a hard commercial lines market is driving rates higher, which partially offsets the decline in exposures. James Lynch, Triple-I's senior vice president and chief actuary, notes that while overall premiums are projected to be flat, the increase in commercial rates is helping to mitigate some of the negative impact on underwriting results. This trend underscores the industry's need to adapt to the new economic realities brought on by the pandemic.

Looking Ahead: Recovery and Uncertainty

Despite the current challenges, the report forecasts a recovery in premiums and a decline in the combined ratio in the coming years. Premiums are expected to grow by 7 percent in 2021 and 6 percent in 2022 as the economy recovers. The combined ratio is projected to fall to 99 for both years, reflecting the industry's ability to price for the effects of the pandemic and the higher rates charged in 2020. However, the path to recovery is fraught with uncertainty, particularly concerning the potential impact of legislative and regulatory changes on pandemic exposures and losses.

For insurers, the key takeaway is the need for flexibility and adaptability in pricing and underwriting strategies. Staying informed about economic trends and regulatory developments will be crucial in navigating the post-pandemic landscape. For consumers, it's important to review and understand how changes in the insurance market may affect their coverage and premiums.