Cycles are a natural part of life, whether it’s the weather or the economy. It’s the same with the commercial insurance market, which fluctuates between soft and hard market cycles.
How do “hard” and “soft” markets affect your business?
In a soft market, coverage is easy to get, insurance companies are less strict about which risks they’ll underwrite, and rates generally remain stable.
The opposite happens in a hard market. Insurers are stricter in their underwriting, exclusions are broader, it’s more difficult to get coverage, and rates are higher. In a hard market, underwriters will take an even closer look at your account at renewal. They may increase your premiums or even decline to renew your coverage.
Where is the market now?
According to many industry experts, the market has been showing signs it may harden for several years. According to Willis Towers Watson’s latest Commercial Lines Insurance Pricing Survey, U.S. commercial insurance rates jumped nearly 4 percent in the second quarter of 2019 compared to the same period a year ago. In each of the previous five quarters, increases were around 2 percent.
What’s driving this trend?
Several factors can cause a market to harden, but the current market situation is largely due to higher than expected losses for insurers. We can thank Mother Nature for most of the property losses. Hurricanes Harvey, Irma, and Maria caused $53 billion in net catastrophic losses in 2017, and the combination of Hurricane Michael and the California wildfires in 2018 caused more than $37 billion in catastrophic losses.
Florida understands losses from hurricanes all too well. As outlined in A.M. Best’s Special Report on the Florida P&C market, several other factors are also contributing to the current state of the Florida insurance market, including two big issues:
- AOB Abuse. The “one-way attorney fee” statute was intended to protect policyholders from large insurance companies. Instead, it created an opening for unscrupulous contractors to abuse assignment of benefits (AOB) agreements and take advantage of insurers and policyholders. Calls for reform have resulted in legislation in the Florida House and Senate to address the issues.
- Loss creep from hurricanes. The insured loss from Hurricane Irma was $11.1 billion as of November 2018, and $6.6 billion for hurricane Michael as of May 2019. But reported claims and ultimate losses continue to rise, partly due to social inflation brought on by AOB issues.
How can you ensure that your business remains a desirable risk when the market hardens?
Three things can help:
- Bring your best risk management game. If the market hardens, insurance carriers will be putting every risk they underwrite under a microscope. Put your risk management practices into high gear now so you’ll be in a more favorable position to negotiate your insurance coverage and rates when the market goes hard.
- Proactively collaborate with your broker. Your broker and insurer both need to understand the full scope of your operations and your unique risks. Gaps in information can lead to an underwriter making wrong assumptions. Make sure all insurance applications are properly completed and all necessary information is conveyed to the broker and the insurer to make sure they’re assessing your risk properly.
- Plan ahead. In a hardening market, you can’t wait until the last minute to manage renewals and coverage changes. Allow your broker ample time to find the best coverage for you, and to put a second option in place if the first underwriter declines coverage. It’s important to be prepared and well-organized.
The bottom line: The better you manage your risks, the better risk you are for the insurer.
Now, more than ever, it’s important to have an experienced insurance broker advocating on your behalf. Wilson, Washburn & Forster is a boutique independent insurance agency that has been in business since 1961.
We have expertise and connections in the commercial insurance market and can help position your business as a desirable underwriting risk in this hardening market. We can also help customize the right mix of coverage and endorsements to protect against the unique exposures of your business. You will find that our experience, claims handling, service, and community commitment is unrivaled.
Contact us today for a complimentary analysis of your current insurance program by an insurance specialist in this field at 786-454-8384.