"A collective sigh of relief" – Aon Q4 2021 report

Read more: World Economic Forum reveals top risks of 2022

“The first main takeaway is that market conditions have become more favorable,” she said. “We started to see a transition in mid-2021, and that shift became more apparent in Q4.”

A year ago, single digit rate increases were hard to come by for most lines of business, but, according to Jenn, in Q4 2021 they have become much more common across large portions of a portfolio.

“There is an exception,” Jenn noted. “Cyber did not follow the rest of the market, there’s widespread recognition of the impact of ransomware, particularly on claims frequency and severity which has been on an upwards trajectory since 2019.”

Another takeaway Jenn noted has to do with the underwriting environment.

“Insurers have been focused on remediation for quite some time and have now shifted their focus towards profitable growth,” she said. “In doing so, their appetite is expanding, and they’re really interested in new opportunities.”

With a strong emphasis on profitable growth, underwriters have naturally become much more cautious, writing business with a higher level of rigor.

“Underwriters have also become much more aware that data and analytics is available to support them,” Jenn added.

Risk differentiation is more important than ever. The more detail in a submission, the better, and evidence of large investments in risk management efforts will ensure a company is a best-in-class risk in 2022.

In terms of market dynamics, there’s the obvious market conditions like pricing, appetite, and capacity, which have leveled out, according to Aon. Then, there are the more subtle conditions to assess such as coverage limits and deductibles.

“When we look at limits and deductibles, they have stabilized over the last couple of renewal cycles,” Jenn continued. “But that’s not to say that some restrictions aren’t being imposed on a case-by-case basis.”

The market is a more favorable environment for insurers, but Jenn clarified that we’re not in a soft market just yet. “We’ve been anticipating capacity coming in for more than a year now and it has finally entered the market in a meaningful way,” she explained.  

Read next: “When the market is soft everyone is sure they’re making a ton of money”

Throughout the pandemic there was so much uncertainty, and insurers took a conservative position as many did not have the necessary models in place to anticipate or quantify what would happen to the marketplace.

“There’s a greater level of certainty now that COVID is running its course,” Jenn explained. “Insurers have gone through multiple cycles of pushing rate increases and now they’ve finally reached the point where they’re satisfied, and rates are adequate.”

Jenn said that in 2022, the big focus will be around proactively implementing plans to reduce and manage volatility.

The pandemic and its related impacts were unprecedented, and the industry did not have a historic model to assess market conditions that were already relatively volatile. It was hard to predict risks like climate change, civil unrest, and social inflation, which led to insurers pulling back capacity and introducing new coverage restrictions.

“As 2021 progressed, and the economy started to recover, there was a collective sigh of relief as insurers realized that the losses they anticipated weren’t materializing,” Jenn said. “The industry is racing to innovate and develop solutions to help organizations be as prepared as possible for what lies ahead.”