The U.S. commercial insurance market is demonstrating clear signs of rate fatigue and an overall softening. Since 2017, the industry has experienced increase
d loss pressures from climate events, social inflation in legal judgments, and loss inflation from economic, political, and other factors.
To address this, insurance carriers have used significant year-over-year rate increases to remain profitable. We are now seeing signs that customers are becoming more resistant to these changes.
In Q2 2024, the broad, ongoing rate increases that had been seen in the commercial P/C mark
et since 2017 broke, with commercial property rates declining by 0.94% – their first decline. Since this initial indication, broader trends have emerged, indicating that the market is at the beginning to soften.
According to Alera Group and CIAB research, average premium increases across all account
sizes fell from 4.2% in Q1 2025 and to 3.7% in Q2 2025. Large account premiums rose by only 2.9%, a 45% decline from Q1 2025, while property premiums for Q2 2025 increased just 1.9%, reflecting an approximate 70% reduction compared to prior quarters.
Shifting Paradigm
The skills needed to succeed in a softening market are different from those required when rate increases are more readily available. To remain profitable, carri
ers need to focus tightly on expenses and more importantly improve the quality and discipline of their underwriting.
Historical approaches have focused on process reengineering, offshoring, and underwriting training. But in this softening market, with the advances in artificial
intelligence (AI), gen AI and agentic AI, underwriting has the need and opportunity to think diffe
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rently. The winners will be those who employ these tools to drive underwriting discipline and efficiency.
From Legacy to Cutting Edge
The traditional underwriting function, despite its evolution, remains largely unchanged. It still relies heavily on manual data collection, administrative tasks, and historical actuarial models.
This legacy approach hinders innovation and limits the potential for data-driven decision-maki
ng. To remain competitive, insurers must embrace AI and gen AI to enhance data ingestion, generate better insights, and enable more consistent and accurate pricing.
It’s not just about modernizing; it’s about blending the best of old and new school underwriting. Old school precision underwriting, powered by AI, can help insurers navigate this inflection point and stay ahead of the curve.
From Experimentation to Implementation
While the industry has been experimenting with AI for the past few years, adoption has been patchy and incremental. However, Accenture’s recent survey of 430 senior insurance underwriting executives across life, commercial property/casualty (P/C), and personal P/C insurance in 11 countries shows growing optimism. According to the data, AI and gen AI adoption in underwriting is expected to jump from 14% today to 70% in the next three years.