We are anticipating an acceleration of a hard property market, characterized by increased pricing, increased retentions, and reduced capacity. Here are the four trends causing this market environment and how it may impact your business:
- Inflation – a prolonged increase in inflation reduced the purchasing power of our currency and leads to economic slowdown. To combat inflation, there have been several amounts of interest rate increases since last March. As a result, insurance companies’ investment returns are down.
- Reinsurance Market – We are entering one of the hardest reinsurance markets in decades. Carrier supply is estimated to be down by $50 billion and January 1st treaty renewals were expected to be 20% or higher.
- Hurricane Ian – This hurricane is estimated to be one of the costliest US hurricanes with insured losses between $30-$70 billion. As a result, 2022 property and casualty underwriting results are expected to worsen above a 105% combined ratio, the worst since 2011. This means that
- Insurance Valuations – We will see an increased cost material, short supply chains, and lack of skilled labor which are driving increases in replacement costs at an accelerated pace. These conditions lead to an underinsured situation at the time of loss.
How can you prepare and limit the impact to your business? Working with your risk management advisor, we recommend these three steps to navigate this difficult market:
Step 1: Implement a business continuity and disaster recovery plan. An effective plan can reduce the duration of any business interruption and limit the cost of a property loss.
Step 2: Ensure an accurate property valuation for the replacement cost of your property. Property valuation software can account for rapidly changing replacement costs. This prevents valuation discrepancies with underwriters and ensures proper payment in the event of a loss.
Step 3: Address any open and outstanding recommendations. During a soft market, insurance companies will often overlook inspection recommendations. When the market changes, these open recommendations can lead to increased pricing or a non-renewal of coverage. You can implement cost-effective strategies to rectify these concerns and avoid underwriting issues.
It is essential to work with an insurance broker that understands how these unique risks might impact your business. If you would like to learn more on the latest business insurance trends and ensure you have the right solutions in place for your company, contact a Marsh McLennan Agency (MMA) advisor today.
