The National Association of Mutual Insurers (NAMIC) held its 2023 Annual Convention on September 17-20 in National Harbor, Maryland. During the convention, AAIS sat down with Professor Bob Hartwig, Ph.D., CPCU, Director of the Center for Risk and Uncertainty Management at the University of South Carolina, to discuss the effect of the U.S. economy on the insurance market, the current state of the reinsurance market, trends affecting carriers, and the impact of an election year.

Effect of the U.S. Economy on the Insurance Market

The U.S. economy has always significantly impacted the property and casualty insurance marketplace, and Hartwig believes that won’t change today or even in 2024. “There's a very slight consensus in favor of a very mild recession,” Hartwig announced. “Historically, that means there would be a modest slowdown in terms of organic premium growth in property-sensitive lines and even to some extent, some commercial lines like workers comp which are affected by payroll.” However, Hartwig anticipates a recession would not be accompanied by mass layoffs, causing an adverse impact on payroll. “We really wouldn't expect to see much of an impact on the P&C insurance industry overall,” he stated. “The larger impact is likely to be on the investment markets where there'll be a lot of questions on Wall Street about [interest rates].”

What’s Happening in the Reinsurance Market

The reinsurance market globally, particularly in the property catastrophe part of the market, has been hard. “Over an 18-month period ending July 1st of this year, [renewals were] up about 35 percent,” Hartwig shared. “That's about the sixth year in a row of increase, which we really haven't seen anything like since either the post-Andrew period or the post-9/11 period.” Hartwig explained this has been propelled by a couple of forces: near-record catastrophe losses on a global scale and inflation. “The expectation for 2024 is continued hard market conditions in the property catastrophe reinsurance marketplace but at a somewhat more modest pace,” he predicted.

Other Trends Affecting U.S. Insurance Carriers

One trend Hartwig believes has been a challenge to the U.S. property casualty insurance industry is the abuse of the legal system. “[It] is driving up claims severities in a way [that is] higher than just about anything other than catastrophe losses,” he said. “It's affecting the casualty components of lines like Commercial Auto, in particular. This is a very challenging issue for P&C insurers because while we can do quite a bit to control and affect loss control in terms of things [like] commercial vehicle losses, the Trial Bar in the United States is probably the best funded, best organized special interest group in the entire country.” Hartwig suggests that P&C insurers need partners in many different industries to address this issue.

Impact of an Election Year

Hartwig imagines the industry is going to be concerned about a number of things during the 2024 election, mostly related to how the regulatory environment might change. The unknown of Congress's composition is also worrisome. “Will it be a Congress that's amenable to tort reforms that could potentially help rein in some of the legal problems and abuse of the legal systems we're seeing around the country?” He questioned. “And what is likely to happen with the monetary policy of the Federal Reserve? Would that ultimately lead to a resurgence of inflation, which has been very painful for this industry?” This industry and Hartwig alike want to see inflation brought under control following the election.

To view the full interview with Professor Bob Hartwig, please click the video above.