A quick look at the ubiquitous news of insurance rates going up and the market hardening could make many insurance buyers think they can’t hope to get favorable rates and terms. But buyers shouldn’t fear hard markets. For those working with the right advocate, there are always opportunities.
The industry identifies market hardening as the time when insurance rates go up, and policy terms and conditions tighten, and perhaps insurers reduce the capacity they’re willing to put up for certain risks. What actually makes a market “hard” or “soft” is a matter of degree. Insurers have always adjusted rates to some extent in response to the losses they incur. In general, the greater the losses, the greater the adjustment.
In commercial lines, rates are going up across the board, according to news reports. For example, in third-quarter 2020, the average rate increase was 6.25%, on top of an average increase of 4.8% in the second quarter, data from MarketScout Corp. shows.
Third-quarter increases were even higher in some lines, such as directors and officers liability, at 11.5%, and umbrella liability at 8.5%. And MarketScout predicts even more aggressive rate hikes in property, D&O, and umbrella liability in the fourth quarter. It’s important to note that these are averages, which means some accounts pay more and some less.
What buyers can expect
So what can insurance buyers expect during policy renewals? For starters, they can expect underwriters to look more closely at policyholders’ risk profiles and loss histories than they might have in the past. Secondly, buyers might pay more for the same amount of coverage. Or they may find that less coverage is available for the same premium, which is essentially a rate increase. But buyers shouldn’t worry that news of a hard market automatically means unfavorable renewal conditions for them.
A competent broker who is committed as an advocate for his or her clients is a powerful ally in any kind of market. A good broker has strong relationships with underwriters. They will always seek the broadest coverages at the best available prices to suit clients’ risk management needs. And that broker will go the extra mile to find appropriate coverage and suggest creative solutions.
For example, buyers with loss experience that underwriters consider high are more likely to see higher renewal quotes. Even in such scenarios, a hard-working broker will help clients understand how to mitigate future losses. They can help improve their risk profiles and present a better submission to underwriters.
Insurers price risk by looking at historical losses and attempting to predict future claims. When a risk looks unlikely to produce profit a few things may happen.
- There is a larger chance the rate will go up.
- The capacity may go down.
- The underwriter may even decline to quote it.
Crafting creative solutions to solving coverage challenges, and altering the amount of risk the client retains through a deductible or self-insured retention, can make a big difference in the cost of insurance. Work with an experienced broker to identify the best options that reduce risks and make risk transfer cost-effective.
Roger Stewart, a partner at Insurance Office of America, has nearly two decades of experience in the insurance industry and all kinds of market conditions. He leads a team that spans all sectors, delivering risk solutions and results for high-profile U.S. and international clients. Contact Roger with any questions or to request a comprehensive review of your risk mitigation plan, at firstname.lastname@example.org.