After the Pandemic: Back to a Boom Market Michael Sauber, VP, Marketing | Aug 27, 2020

Insurance Worldwide

In last month’s post, we introduced the concept of scenario planning as a technique that lets you model the future by making certain assumptions about critical uncertainties and then understanding their implications.

This is the first in a series of posts that examine possible scenarios for two critical uncertainties: “premium growth” and “market power” (see Figure 1). Along the way, we will consider the factors that could cause total available premiums to grow or contract. Will rates continue to harden? Will new risks emerge, and existing risks grow? And we will speculate about who in the value chain may be best positioned to take advantage, whichever way the market swings. Will carriers take the upper hand, or will it be the MGAs? (See our prior post on The Value Chain Wars.) 


Figure 1. Four Growth – Power Scenarios

The High Growth Scenario

Certainly, the pandemic has shaken the market this year. But we have seen natural disasters and economic shocks before, and each time the market has rebounded. (Figure 2). What might this recovery look like? Could we see some permanent changes that place us on a new trajectory?


Figure 2. Commercial Lines NPW Premium Growth: 1975 – 20191

Let’s take a look five years into the future and speculate on a market where premium growth has come roaring back. Since premiums are a product of rates and insurable risks, we will examine both factors, beginning with the prospects for a rate hardening, and followed by the risks that could drive an expansion in premiums. We’ll describe the future in its extreme state. What if all the stars aligned and everything that could drive growth fell into place?

Rate Hardening Continues

It’s 2025 and the pandemic of 2020 seems like a bad dream. In the second quarter that year, U.S. commercial property/casualty rates increased an average of 18%.2 But it didn’t stop there. Just as we thought the pandemic was winding down, another wave hit propping up rates again. And two years later, a new strain of COVID emerged, starting the cycle all over again.

Pandemics are not the only factor that’s keeping rates high in 2025:

  • More frequent high-severity events, caused by worsening climate change, drive rates higher.3
  • “Social inflation” 4 continues to drive large jury awards and liability settlements. The resulting claims levels are unsustainable, and rates remain high to compensate.
  • A permanent shift to work-from-home for large swaths of the workforce has changed the workers’ compensation calculus. Rates move higher as poor ergonomics lead to more back, wrist, and eye issues, opportunities for fraudulent claims increase, and the risks become harder to manage.


Risks also play a role in our 2025 high-growth scenario. New risks exposed by recurring virus threats and the mainstreaming of risks that were considered “emerging” in 2020 have expanded business opportunities for insurers that were prepared to take advantage:  

Workers’ Compensation Expands

  • The labor market has recovered from the deep unemployment of 2020, aided by government stimulus that helped small businesses restart. Workers’ comp premiums grow with the rise in payrolls.
  • Expanded automation in the workplace has a net positive effect on labor force growth, driving growth in workers’ comp insurance (nearly 25% of the commercial market).5
  • Court rulings that gig economy workers must be classified as employees (the Uber-Lyft case set the precedent) 6 and workers’ comp expands further.

Demand for Cyber Insurance Grows

  • Proliferation of smart devices creates an increasing number of “points of entry”, leading to more high-profile data breaches.
  • An increase in work-from-home introduces new cyber risks, as home-based employees lack the network security features common in office environments. Cyber insurance evolves as protecting company data becomes more complex with a dispersed workforce.
  • Cyberwarfare accelerates as global powers jockey for power, prompting new variations in cyber coverage.
  • Insurers shift from “silent cyber” (cyber risks left unaddressed in commercial policies) to explicitly affirm or exclude cyber.7
  • Emerging cyber risks expand coverage opportunities. These include aggregated risks such as cloud services that support multiple businesses (e.g. Azure, AWS), complex supply chains, and ransomware threats.8
  • The Gig Economy spurs the creation of new insurance products. By 2025, 45% of workers participate in the gig economy (some as a second job). This prompts new insurance products that cover solo entrepreneurs and dual-use property (e.g., Uber/Lyft, Airbnb, home offices).

Business Interruption and Cat Insurance Grow

  • Climate change drives more frequent and severe catastrophic events driving up demand for cat insurance and business disruption insurance.
  • Rising nationalism drives more frequent trade wars and supply chain risks.
  • Recurring pandemics curtail travel and shutter businesses. Tourist economies and global supply chains are deemed higher risks. Business interruption insurance is modified to include pandemics, at a higher premium. New products emerge, including college tuition refund and relief to manufacturers during lockdowns.

Reputation Insurance Expands

  • Risks from political incorrectness and lifestyle indiscretions increase as retailers, restaurant chains, and others deal with the words and actions of celebrity spokespersons.
  • Social media accelerates the proliferation of bad news, with more than a quarter of reputational crises spreading internationally within one hour.
  • Reputation insurance grows to fill the gap.9

New Lines Replace Declining Lines

  • Manufacturing automation reduces the workforce in some industries and workers’ comp insurance is replaced by robotics coverage.
  • Self-driving vehicles become the norm. Liability shifts from the driver to the manufacturer. Vehicle owner insurance is replaced by insurance for auto manufacturers.

So, there you have it. Even if only some of our speculation about rates and risks proves true, the next five years could be a period of expanded opportunities for the industry. But will everyone benefit equally? In our next installment, we will describe two possible scenarios that might emerge from a period of high growth. In the first, carriers will take the upper hand (“Cash is King”, in Figure 1), while in the alternate universe, MGAs will rise to the top (“Program Power”). Stay tuned.

1    Hartwig, Robert P. COVID-19: Financial and Economic Impacts on the P&C Insurance Industry. University of South Carolina. July 14, 2020.
2    Global Insurance Market Index – 2020 Q2. Marsh & McLennan Companies. August 2020. 
3    Retro Capacity Retracts as Catastrophe Losses Weigh. Business Insurance. November 2019.
4    Moorcraft, Bethan. What is social inflation, and why is it hurting insurance? Insurance Business. 3 Jan 2020.
5    Automation and a Changing Economy. Aspen Institute. Pg. 6.
6    Peters, Jay and Andrew J. Hawkins. Uber and Lyft ordered by California judge to classify drivers as employees. The Verge. 10 Aug 2020.
7    Greenwald, Judy. Insurers take affirmative stance on cyber. Business Insurance. November 2019.
8    Paul Oyer, Stanford University.       
9    Esola, Louise. Reputations at Risk in the Age of Social Media. Business Insurance. April 2020, pp. 26-28.

Mike Sauber joined Instec in 2016, with over 30 years of experience in technology marketing and sales. Mike has led global marketing teams and programs at IBM, Unisys, and Data General, among others, and prior to Instec was a member of the teams that launched two new enterprise software ventures. His deep technology industry experience includes software, servers, printers, and services, with an exclusive focus on the insurance industry since 2011. Mike holds an MBA from the University of Pennsylvania (The Wharton School), and a BES (Architecture) from the University of Waterloo.