2023 State of the Market - Risk Management

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NOTE: Discover valuable insights on 2024 insurance market conditions. For a detailed analysis and comprehensive information, visit our State of the Insurance Market | 2024 Initial Outlook.

Strategic Risk Management, Resiliency, and Competitive Edge

Risk management is a critical factor for business resilience, profitability, and success. Today, it’s vital that individuals and businesses have a holistic understanding of their risks and put plans in place to manage them. Businesses with a strong risk profile will be in the best position to successfully navigate uncertainty and emerging risks.

Emerging Risks

There are many current and emerging risks. Three that are affecting virtually every industry and are noteworthy to mention here include:

Environmental, Social, & Governance (ESG)

Transparency requirements, particularly for public companies, are growing including mandatory disclosures in financial reporting and annual statements. Yet, ESG has not been fully defined, leaving many companies to interpret and define their initiatives. Discrepancies, false or misleading ESG statements, or a general feeling that a company is not doing enough, can bring regulatory scrutiny, reputational risks, and litigation.

Social Inflation and Litigation Funding

aerial view of cityThis is a growing risk as we see it migrate beyond personal injury and transportation sectors to property, cyber liability, and directors & officers. Social inflation is a leading cause contributing to much higher jury awards. We are also seeing third-party litigation funding models contribute to rising costs by providing litigants an entryway to initiate expensive and prolonged lawsuits. In many industries, much higher claims costs are occurring that ultimately result in higher premiums and/or reduction in insurance coverages.

Larger jury verdicts frequently arise from poor business practices and weak corporate governance policies. We recommend that you work with a specialty broker to assess and strengthen your risk management practices by having visibility and a robust strategic plan to manage the exposures.

Increased Frequency and Severity of CAT losses

According to NOAA, property catastrophic (CAT) losses from weather-related events have increased across the U.S. and this is having a significant negative impact on the property market both in terms of rate and limitations to insurance capacity.

Compounding the weather events, the property market, especially the property reinsurance CAT markets, has also been impacted by higher inflation, rising interest rates, and significant loss of capital and liquidity. Hurricane Ian revealed that most businesses and personal homeowners did not have adequate insurance coverage for their losses.

Looking Ahead

Engineers reviewing plans and assessing risks on an industrial job site.Countering today’s risks will require a strategic focus, purposeful action plans, accountability, and continuous measurement and monitoring of results. Risk identification is a primary step to understanding your risks, followed by a full risk assessment, and putting risk control programs in place to address the gaps.

All of these risk issues, coupled with other geopolitical risk factors currently facing the world, will continue to place extreme pressure on how insurers and reinsurers will interpret risk going forward. Businesses will require tighter risk management controls and face higher insurance underwriting standards. The best insurance rates and coverages will go to companies that have sound risk management practices in place. We recommend that you work with a specialty broker for specialty insights, practical advice, and custom insurance.

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