Are you expecting a flat renewal or even a slight decrease this year? I understand that’s most likely been the expectation for the last several years, and rightfully so. I’ve always been one to be extremely positive, soft in nature, and upbeat – however – like the current state of the insurance marketplace, I’ll have to harden up and tell you otherwise.
In 2020, the industry went into a hard market for the first time in around 15 years. To put things in perspective, in a soft market, insurance underwriters take brokers to lunch, who in turn take clients to lunch. In a hard market, clients take brokers to lunch, who in turn take underwriters to lunch. The industry could see a 10%-25% rate increase across industry verticals and sometimes as high as 500%! In 2023, rates have increased 8%-15%. A hard market can come back at any time, so it is important to stay prepared.
WHAT IS A HARD MARKET?
A period in the insurance industry of reduced capacity and increasing rates, characterized by four key factors:
- Diminished underwriting appetite & capacity– As carriers take on poor loss experience, they respond by restricting the classes of business and lines of coverage they want to insure.
- Increase rates– Both frequency and severity of claims are on the rise. Carriers are not collecting enough premium to cover the cost of claims. Litigation trends and increased medical costs have also led to higher payouts.
- Changes in coverage forms removing/modifying coverages– As reinsurance becomes more costly or difficult to obtain, underlying carriers will increase rates as they are forced to take on more of the primary exposure or they will exit classes of business entirely.
- Decrease in carrier investment returns– Typically most carriers’ profits are from investment returns even if they have an unprofitable underwriting year. Reduced returns are causing carriers to restrict their underwriting appetite.
Now that you have an idea of what a hard insurance market is, are you being impacted?
Here are four tips to survive and navigate through this hard market:
- Stay ahead of the renewal process and communicate early with your broker to learn if you will be impacted and if so, how much.
- Be prepared to provide an increased level of detail at the time of renewal.
- With shrinking capacity, carriers will be diminishing the number of brokers and wholesalers they work with. Be sure to partner with a broker with strong carrier relationships, a robust service platform and deep market penetration in your industry.
- Talk to your broker! Review market conditions, discuss losses at intervals during your policy period and NOT just during the “pre-renewal” process, or worse yet, the renewal meeting. Establish a plan with goals and targets. Ask your brokers about worst-case scenarios for your account and options to avoid those scenarios. Review policies and procedures with your broker and see where improvements can be made to obtain more favorable quotes or reduce your exposure to losses where coverage restrictions may apply.
In a nutshell, there are ways to avoid being a victim to the marketplace disruption. I urge you to begin the “renewal process” early and strategize all throughout the year!
Still have questions? Contact an MMA advisor today.
