Global Insurance Report 2023: Expanding commercial P&C’s market relevance

The nature of risk is evolving faster than ever, and commercial carriers must step up to fulfill the societal desire for resilience in a volatile world by closing protection gaps—or risk losing relevance: McKinsey

Read the whole McKinsey report

Chicago, IL (Feb. 16, 2023) – Global commercial property and casualty (P&C) lines have delivered strong financial performance in recent years following the soft market of 2013 to 2018, despite widespread disruption in the wake of the COVID-19 pandemic, the war in Ukraine, and the resulting supply chain disruptions. Premiums have been propelled by extensive year-on-year risk-adjusted rate hardening: the annual premium growth rate for commercial P&C lines has hovered at 6 to 8 percent since 2018, and combined ratios have been improving.

However, commercial carriers find themselves at an inflection point as they face a continuing cycle of economic uncertainties, including inflation, geopolitical headwinds, environmental challenges, and capital constraints. This gradual acceleration of macroeconomic trends across multiple events that are pressuring the insurance industry is different from previous shocks. In combination with the structural changes in the nature of risks, commercial carriers today need to address four critical challenges.

First, in the current environment, rates in some lines are starting to soften as capacity returns, while hardening continues in other lines—in some cases further supported by maintaining limits, despite inflation. Rising claims inflation and growing competition from distributors are squeezing profits. But opportunities exist as well. Some commercial carriers are expecting meaningful investment returns due to the increase in interest rates. The race to decarbonize underwriting portfolios—with nuances depending on geographies—is challenging and calls for new capabilities but also offers opportunities for growth.

Second, the nature of risks is evolving faster than ever, especially when it comes to natural catastrophes (NatCats), the net-zero transition, and supply chain and cyber risks. Rather than stepping back and reducing their exposure, commercial carriers have a significant opportunity to step forward to address the growing protection gaps—or risk losing relevance in a changing world.

Third, these challenges are exacerbated by tightening capacity in both traditional reinsurance capital and alternative capital markets, and the full extent and duration of the capacity squeeze are still uncertain given the strong hardening observed in January 2023 renewals.

Fourth, to navigate the new nature of risks, commercial carriers must prepare to transform their capabilities and talent as underwriting and claims shift from an art to a science.

Commercial carriers will need to invest and take decisive action in response to each of these four challenges. First, commercial carriers must define a clear source of distinctiveness to protect their margins by competing beyond rates. Second, they can expand relevance by closing protection gaps through product innovation, more sophisticated pricing, and risk prevention and mitigation solutions. Third, commercial carriers will need to secure capacity by innovating the use of alternative capital and addressing investor concerns about long-term profitability. Finally, commercial carriers must reinvent their employee value proposition and develop the capabilities to shift from art to science to address the risks of the future.

Read the full report on McKinsey’s website, with additional charts and in-depth discussion of these points:

  • The most successful commercial carriers have defined a clear source of distinctiveness that allows them to compete beyond prices.
  • The declining relevance of commercial lines is the most critical challenge that the insurance industry is facing today.
  • Commercial carriers can support the adoption of carbon markets by offering alternative risk-transfer solutions, including coverages for buyers and sellers.
  • Commercial carriers need to evolve their pricing models to be more nuanced in relation to changing risks and leverage more advanced modeling techniques and internal and external data.
  • To close protection gaps, alternative sources of capital will be critical for commercial carriers.
  • Successful underwriting requires a comprehensive set of quantitative capabilities and qualitative skills.

About the Authors

About McKinsey

McKinsey & Company is a global management consulting firm that serves leading businesses, governments, non governmental organizations, and not-for-profits. We help our clients make lasting improvements to their performance and realize their most important goals. Over nearly a century, we’ve built a firm uniquely equipped to this task. For more information, visit

SOURCE: McKinsey