Economy and Surplus Lines

Global growth is slowing as U.S. tariff policy reduces trade and heightens geopolitical uncertainty. That will lead to decelerating growth in insurance premiums.

According to Swiss Re, global GDP growth (adjusted for inflation) is expected to slow to 2.3% this year and 2.4% in 2026, Swiss Re Institute said in its report titled “World insurance in 2025: a riskier, more fragmented world order.”

Concerns regarding tariffs involve the effect on property and vehicle insurance claims. Also, factors such as any weakening in economic conditions and inflationary pressures that could potentially cause long-term stock market volatility could pressure insurance companies’ combined ratios–including the surplus lines companies–and erode policyholders’ surplus, AM Best noted in its Market Segment Report on the sector.

Paul G. Smith, corporate senior vice president at H.W. Kaufman Group/Burns & Wilcox, said changes in the economy affect the insurance market in several ways.

“One, the cost of goods to rebuild a house, to build a new house, to build a building, goes up,” he said. Or the ability for commercial insureds to maintain sufficient inventories of supplies can be hindered because of some of the tariffs. “It also impacts investments into the growth of organizations, expanding your facility, trying to gain more market share.” The economy has an impact on just about everything, whether it’s commercial or personal insurance, he said.

For example, a recent conversation with a policyholder led to a disclosure about budget concerns in risk mitigation efforts. “They were commenting that they have a budget for risk mitigation with respect to fire protection for a warehouse, but with the uncertainty surrounding the financial climate that we’re in right now, they had to put the brakes on making some changes to their fire suppression system. That has an impact on insurance.”

Neil Kessler, CEO of Specialty and Benefits at CRC, said the economy drives how much demand there is for insurance. “And insurance is priced off underlying things that are tied to the economy, whether it’s payroll receipts, or the exposure pool, the economy can definitely have an impact on the industry.” Plus, after several years of insurance price increases in many industries, any economic challenge facing commercial policyholders is a concern.

“There have been years of, in certain lines, subsequent increases in pricing, and I think there is fatigue out there,” Kessler said. The insurance industry can help, he said. “People are open to having conversations about what’s really driving cost increases, and if we can get to the root cause of those things, we can try to have some impact. That’s a smart way for the industry to think.”

Even with the economic concerns facing some industries, the U.S. remains the strongest economy in the world, Smith said. “The majority of insurance premium comes out of the United States … so insurers, reinsurers, etc., whether they be in London, Switzerland, the UAE, they all want a piece of the U.S. marketplace,” he said. “So, as long as our economy remains robust, and our very litigious society in the U.S. continues, there will be a need for more and more insurance and the need for risk transfer.”

Topics Excess Surplus