P&C insurers face strategic pressure as growth in premiums slows: McKinsey

The average combined ratio improved to about 91% in 2023 driven by rate increases.

The global commercial property and casualty (P&C) insurance market has seen an average annual premium growth of 8% over the past five years despite more recent signs of softening, according to McKinsey's Global Insurance Report 2025. 

The industry's average combined ratio improved to an estimated 91% in 2023, driven mainly by rate increases rather than new demand. Higher rates fuelled growth in Europe and North America, whilst non-rate-related factors hindered overall premium expansion.

As insurance rates have softened in some lines like financial and professional liability, the industry faces pressure to find growth through alternative means. McKinsey recommends that insurers reexamine their strategies, improve operational agility, and consider new growth avenues. 

Slow-to-adapt underwriting operations could become a liability as market conditions evolve, and insurers must be fast enough to shift their strategies should rates soften, it added.

The demand for commercial insurance is insufficient to keep pace amidst a widened protection gap, McKinsey said. In 2023, the global protection gap for natural catastrophes reached $262b, up from $181b in 2022, with coverage limited to the US.

A significant gap also persists in cyber insurance, with premiums expected to reach only $23b by 2025, despite global cybercrime costs projected to hit $10.5t.

McKinsey also noted that higher insurance costs are pushing customers, especially small and medium-sized enterprises, to assume more risk or decline coverage altogether.

Captive insurance usage rose to 25% in 2023, up from 17% in 2021, as companies seek alternatives to traditional, costlier coverage options. In the UK, over half of small businesses stopped purchasing at least one insurance product in 2022, whilst 75% in the US are estimated to have insufficient insurance.

To bridge these protection gaps, McKinsey said insurers must develop innovative, cost-effective solutions that align with customer needs and profitability goals. Specialty insurance lines remain the most consistently profitable segment in commercial P&C, with combined ratios below 100%. 

However, even specialty-focused insurers have faced variability in profitability compared to their diversified peers, raising concerns about balancing risk and return, it added.