Claims inflation is expected to continue as insurers pay out increasingly large settlement values, according to Amwins’ "State of the Market 2025 Outlook" report. “This inflationary pressure has been felt across various sectors of insurance, leading carriers to increase premiums, tighten terms and conditions, and restrict coverage limits,” the report states. “The rising number of outsized jury awards, often in excess of $10 million, is a particular source of concern. The acceleration of these Nuclear Verdicts since the onset of the COVID-19 pandemic is outpacing economic inflation.”
Causes of Claims Inflation
The escalation of Nuclear Verdicts is partially due to court backlogs during the pandemic, according to the report. The backlogs lead to changes in plaintiff tactics as well as social inflation. “Jury awards quickly returned to pre-pandemic levels and drove up settlement values," states the report. "A ripple effect was felt across jurisdictions and reverberated throughout the industry.”
Additionally, plaintiffs' lawyers began employing tactics such as the “reptile theory” to create sympathetic juries and scare them into believing that they should fear the plaintiff and will suffer a similar loss if the defendant isn’t harshly punished. Combined with the rise of third-party litigation funding (TPLF) and plaintiff advertising, all of these tactics have driven social inflation, causing not only increased verdict amounts, but also more difficulty settling cases out of court.
Furthermore, the rise of “judicial hellholes,” or plaintiff-friendly jurisdictions, is also driving the prevalence of outsized jury awards. “According to the most recent U.S. Chamber of Commerce ILR update, when combined, California, Florida, New York, and Texas yield half of the nation’s nuclear verdicts,” the report states. “These so-called ‘judicial hellholes’ can pose significant challenges to insurers, as verdicts tend to be larger and more unpredictable.”
The report goes on to say that, in the past, “defendants could present a linear stream of events. Now, they must tell a story and engage the jury while still presenting the facts of the case in a structured manner.” Tort reform laws, however, are expected to impact Nuclear Verdicts, although there is no precedent as to how long it may take for significant impacts to be felt.
The report also broke down the state of the market by sector and offered the following insights:
E&S Market Growth Continues
“The excess and surplus (E&S) insurance market has experienced notable growth over the past six years, driven by a confluence of factors that have reshaped the risk landscape and expanded demand for specialized coverage,” states the report.
It continues, “Small and mid-sized business risks have grown in complexity and size, as has the level of risk in certain lines of business. Increased casualty risk has been primarily driven by social inflation and technology advancements while growing property risk can be attributed to the increasing severity of natural disasters like hurricanes and wildfires. The E&S market, with its flexibility and capacity for innovation, has stepped in to address these gaps effectively.”
Property
According to the report, the property market continues to be fragile, but is softening overall. The back-to-back hurricanes (Helene and Milton) made a significant financial impact. “While both [hurricanes] were significant weather events that caused a lot of property damage, Helene was primarily an inland flood event with initial loss estimates of [$6 to $12 billion] and Milton was more of a wind event with loss estimates ranging from $15 to $30 billion.”
Despite the losses from both hurricanes, along with other severe convective storms, the property market has continued to soften overall. “New capacity continued to enter the space in 2024, forcing existing markets to become more flexible with their pricing and overall appetites,” the report states. “Many carriers also increased their line sizes, making layered and shared deals easier to place.”
It is still to early to tell, however, whether the 2025 property market will be affected by Hurricanes Helene and Milton; in fact, Amwins experts view the 2024 hurricane season as an earnings event, rather than a balance sheet event, for most carriers. “Most early reports agree with our assessment, indicating that there is enough capacity in the marketplace to make losses manageable for most carriers. But there are others that point to the potential argument that water damage from Helene was the result of wind-driven water from Milton and the fact that insurers often feel pressure after major storms to pay claims that wouldn’t typically be covered,” the report explains.
Casualty
“The casualty insurance market remains in a state of adjustment as we move into 2025,” states the report. “Loss development continues to be driven by a host of challenges ranging from social inflation to the overall complexities of the legal environment. It’s clear that current rate increases are here to stay for the foreseeable future.”
Furthermore, “Social inflation continues to be a significant concern for carriers and reinsurers, particularly in states with plaintiff-friendly legal venues, such as Georgia, Pennsylvania, and California,” states the report. “At the heart of this issue is not only Nuclear Verdicts, [but also] TPLF, which has introduced new complexities to the legal landscape.” Despite the fact that certain states have enacted reforms to address TPLF, along with legislation recently being introduced at the federal level, “more states will need to address the issues of litigation financing and tort reform before we see any meaningful impact to the casualty market.”
Overall, although there is little confidence among carriers regarding the stability of the casualty market, solutions are being found and capacity is available. “The ongoing flow of investment and new entrants signals that there is still enough appeal in the market to sustain optimism for the future, even if caution is warranted,” states the report.
Professional Lines
“The professional lines market is entering a period of transformation as carriers adapt to new opportunities and challenges,” the report notes. As a result, there are several noteworthy trends emerging in the market.
“Carriers are beginning to prioritize the diversification of risk portfolios,” according to the report. “Many are exploring smaller risk where they traditionally worked with larger ones, and carriers who commonly dealt with smaller risks are moving upstream. Additionally, markets are starting to explore previously untapped sectors, such as health care D&O.”
Furthermore, enhanced offerings with digital security services and preventative options are emerging, with some markets tapping into independent revenue streams from these services, indicating diversification. In addition, “data and transactional efficiency is also becoming increasingly recognized,” the report explains. “Markets are investing in advanced technologies, such as artificial intelligence (AI) and application programming interfaces (APIs), to streamline online portals and improve user experiences.”
Lastly, a distinction is being made between wholesale and retail strategies, and specialization is becoming key as the market shifts. Carriers are turning toward niches in areas such as telemedicine and real estate development. The current “soft market climate” is driving innovation with an emphasis on managing limits for tougher risks.
Construction
“Strong capacity exists in primary GL markets for straightforward placements and lower hazard classes with good loss history should look for flat to low single digit renewal rates this year—except in New York where markets are still looking for 5% to 10% renewal increases.” Tougher classes, such as demolition, curtain wall, foundation, scaffolding, and excess capacity on “frame for-sale residential construction in construction defect states,” have fewer options; however, coverage can still be found.
The professional liability market in construction is stable and competitive. “Historical classes such as condos, unique energy risks (solar facilities, battery plants, geothermal sites, etc.) and integrated project delivery (IPD) continue to be challenging, especially in Florida and New York, which are loss leaders for the markets,” the report explains. “Capacity remains available for architects & engineers as well as contractor’s coverage.”
Environmental
“The environmental market continues to be stable on balance,” states the report. “Although some carriers have exited the space, new entrants have offset their departure, helping to limit drastic rate swings or notable new exclusionary language and keep conditions competitive overall.”
Furthermore, “PFAS (perfluoroalkyl or polyfluoroalkyl substances) exclusions are increasingly mandated by carriers; however, there are markets willing to modify or remove the exclusion for contractors and consultants who are working on cleanup,” according to the report. “Additionally, a few markets are willing to provide coverage for an insured’s site if they can demonstrate they have little to no exposure to PFAS chemicals.”
The EPA finalized its designation of perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS) as hazardous substances, which gives it enforcement power against parties that manufactured the chemicals, as well as other responsible parties. Further, “the EPA’s environmental justice initiative, which focuses on cleanup efforts in low-income and disadvantaged communities, is leading to increased fines and scrutiny for accounts operating in these areas,” the report states. “Additionally, non-governmental organizations, often backed by third-party litigation funding, are increasingly filing lawsuits against alleged polluters.”
Cyber
“The cyber insurance market is facing increased competition and evolving risk dynamics,” according to the report. Amwins put the overall market into three distinct categories: new entrants, seasoned players (established carriers with over 10 years in the cyber space), and middle-tier insurers (entities facing pressure to clearly define their offerings). “The mix of new entrants and ample capacity suggests that soft market conditions are likely to persist into the foreseeable future while prompting a shift toward more differentiated offerings.”
High-profile cyber incidents, such as Crowdstrike, have made a smaller impact than anticipated, aside from a small segment. However, such events have highlighted the need for insurers to assess risk portfolios critically. Ransomware is also plaguing organizations across various sectors. “Despite rising claims, the cyber insurance marketplace has yet to respond meaningfully to this persistent threat, potentially due to improved risk controls among a wider array of insureds,” explains the report. “However, a large segment of commercial enterprises remains uninsured for cyber risks, presenting an ongoing challenge for carriers.”
Biometrics are also a concern, as businesses increasingly rely on this technology for security and efficiency, the report notes. Espionage and information gathering are also serious issues that are arising. With social inflation causing rising operational costs, possibly impacting how companies prioritize security investments, companies are more vulnerable to attacks by cybercriminals.
Wildfire
“Recent wildfires have become larger and more complex,” according to the report. It adds, “Extreme fire events are projected to increase by 50% by the century’s end, driven by climate change and changes in land use.” As a result, insurance rates remain competitive but high.
To adapt to evolving risks, the market is innovating its coverage structures, offering traditional all-risk coverage, which includes wildfire coverage through multiple carriers, featuring diverse deductible structures; parametric insurance, a customizable policy triggered when an insured suffers a loss within predetermined parameters due to wildfire or smoke; and California Fair Plan (CFP), which increased its coverage limits to $20 million.