Lockton: US P&C market largely predictable but ‘warning signs’ emerging

By Michael Loney

March 25 - (The Insurer) - The U.S. commercial insurance market is largely stable, but concerns are rising over the broader economy, Lockton has said.

• Property insurers defending existing portfolios while also pursuing growth

• Workers’ comp continues to provide cushion amid declining liability profitability

• Third-party liability buyers face reduced capacity, increased risk sharing and soaring premiums

• Many public D&O carriers have “reduction fatigue”, with rates bottomed out

• Cyber rates continue to fall, but carriers pushing for flat premiums amid rising claims

In a new market update, Lockton said that conditions remain buyer-friendly across most major lines, including property, workers' compensation, directors and officers' liability (D&O), and cyber.

A notable exception is third-party liability, which continues to be reshaped by social inflation, driving pricing up and capacity down.

“At the start of 2025, the property and casualty insurance market remains largely stable and predictable. Warning signs, however, are emerging,” the report said.

Lockton cited the US economy as the chief concern with questions over inflation. Other concerns include social inflation, climate change and a volatile geopolitical landscape.

PROPERTY CONDITIONS IMPROVING FOR BUYERS

In the property insurance market, conditions continue to improve for most buyers. Lockton data shows median property rates rose 1.1% in Q4, down from 2.1% in Q3.

Lockton expects non-cat-exposed business to show 15% rate decreases to flat change in the next quarter, and cat-exposed/challenged occupancies to have 20% to 5% rate decreases.

“Commercial property insurers are actively defending their existing portfolios while also pursuing growth opportunities,” the report said. “In addition to improving pricing, buyers can generally secure more favorable terms and conditions, reducing instances of non-concurrencies.”

Lockton said that shared and layered placements remain more competitive than single-carrier placements. Rates for shared and layered programs rose more during the hard market.

Oversubscription is common, which is creating challenges for buyers who must balance long-term insurer relationships against emerging market opportunities.

“Several carriers continue to pursue middle-market opportunities, resulting in competitive conditions for that space,” the report said.

Lockton said that the impact of the southern California wildfires in January is uncertain and “much depends on how the rest of the year progresses.

WORKERS’ COMP MARGINS SQUEEZED

Lockton said that workers’ compensation buyers are benefiting from the fact that the line remains attractive to commercial insurers.

Median rates for guaranteed-cost programs fell 3.7% in the fourth quarter, according to Lockton data, while median rates for loss-sensitive programs fell 2.5%.

Lockton projects 5% to flat rate changes in the next quarter for both of these workers’ comp covers.

“Workers’ compensation continues to provide a key cushion for insurers amid declining profitability in liability lines. It also remains an important negotiating tool when structuring broader insurance programs, allowing buyers to leverage its strong performance to optimise terms and pricing for other coverages,” the report said.

However, workers’ compensation has become less of a tailwind for insurers, with its share of total U.S. commercial premiums falling from 20% in 2026 to 11% in 2024.

“Declining rates and higher deductibles have also squeezed margins,” the report said.

Escalating loss trends continue to push liability premiums up.

According to data from the Council of Insurance Agents & Brokers, general liability rates rose 5.3% on average in the fourth quarter and auto liability rates rose 8.9% on average.

Umbrella and excess casualty rate increases accelerated in the fourth quarter. Lockton data showed that median lead umbrella price per million rose 9.7%, while median excess casualty price per million rose 9.2%.

Lockton expects rate increases in the next quarter of 8% to 13% for general liability, 10% to 15% for auto liability, 8% to 18% for lead umbrella and 7% to 17% for excess.

“Occurrence-based policies, in particular, remain challenging. Insurers struggle to accurately predict, price, and reserve for losses that can take decades to emerge,” the report said.

Lockton said reviver statutes have further complicated the outlook for sexual abuse and molestation claims, while asbestos-related liabilities are an ongoing problem.

“Similarly, insurers are worried about massive, unpredictable claims (as previously seen with asbestos) from litigation stemming from the widespread use of per- and polyfluoroalkyl substances (PFAS), also known as ‘forever chemicals,’” the report said.

Lockton continued that so-called judicial hellholes “are a significant challenge for insurers and businesses facing litigation”.

D&O RATE REDUCTIONS MODERATING

The D&O market is stable for most public and private insurance buyers.

According to Lockton’s data, D&O rates fell 9.5% for public companies in Q4 and 5.5% for private companies and nonprofit organizations.

In the next quarter Lockton expects 10% rate decreases to flat for public D&O and 5% decreases to flat for private D&O.

“After an extended period of declining rates and strong competition, many carriers appear to now have ‘reduction fatigue.’ For mature public companies, rates are trending flat to down 10%,” the report said.

Lockton said that de-SPACs, i.e. companies formed via the merger of special purpose acquisition companies and private companies, may be able to secure rate reductions.

“Despite the departure of some longstanding carriers, capacity is plentiful. Insurers are still eager to compete, although there is not as much premium pressure on incumbents in the current market,” the report said,

It added: “Favourable terms and conditions are generally attainable, but insurers are considering them on an individual risk basis. Insurers are taking varied approaches to entity investigation coverage, in terms of both breadth of coverage and pricing.”

Lockton said insurers are cautiously optimistic about the SEC and other federal regulators taking a more business-friendly approach under the Trump administration, although the administration’s stance on diversity, equity and inclusion could influence board and leadership composition.

Stable market conditions also persist for employment practices liability (EPL) buyers, Lockton said, with rates down 2.5% in Q4.

“EPL insurers have indicated that we have reached the bottom of the market. For most buyers, results at renewal are predictable; good risks are renewing flat or with slight reductions,” the report said.

Capacity is stable, Lockton said.

“Although no major insurers have exited the market, one carrier has begun to non-renew stand-alone EPL policies, unless they can secure another management liability program, such as D&O or fiduciary liability, for a buyer,” the report added.

SIGNS OF FIRMING IN CYBER

The cyber insurance market remains generally favourable to buyers, according to the report, although “signs of some firming are emerging”.

Median pricing for total cyber insurance programs fell 4.5% in Q4. Lockton expects in the next quarter 10% rate decreases to flat change.

“While rates continued to decline in the fourth quarter, cyber insurers are pushing for flat renewals amid rising claims frequency and severity. Ransomware attacks are growing more sophisticated, technology disruptions are on the rise, and evolving privacy regulations are expanding litigation risks,” the report said.