The insurance industry is constantly evolving, and our clients often find themselves in the midst of market fluctuations that can significantly impact their coverage and premiums.
In the U.S., the recent cycle of natural catastrophes has caused billions of dollars in damage, and insurers have been further challenged by high inflation, a historic supply chain crisis, and labor issues across key industries, all contributing to a hardening insurance market.
When the insurance market tightens, clients face increased premiums, stricter underwriting criteria, and diminished policy terms and conditions.
So, what can you do?
First, it’s critical that you reach out to an experienced broker, like Holmes Murphy, to help you in navigating the insurance market and ensuring you make informed decisions. Second, I’ve offered some tips below that can also help!
What Makes Up a Hardening Insurance Market?
Let’s take a look at what a hardening insurance market entails.
Rising Premiums
In a hardening market, insurance premiums are on the rise across various lines of coverage. Severe property and liability losses, and spiraling litigation costs have contributed to persistently high loss ratios for insurance carriers.
In three of the last five years, combined loss ratios for property carriers have exceeded 100 percent. In 2023, that trend will continue. Projections from various catastrophe models indicate claim expenses rising nearly 30 percent due to other factors, including the cost and availability of labor and material.
Stricter Underwriting
Insurance carriers are becoming more selective when evaluating risk. This heightened scrutiny can lead to increased documentation requirements and a higher bar for approval. In many cases, carriers have retreated entirely from geographies more prone to catastrophic loss, leading to a smaller pool of potential markets and tightening underwriting appetite.
Limited Capacity
Insurance companies may reduce the amount of coverage they are willing to provide, particularly for clients in high-risk industries or those with complex risks. Large natural disasters have also impacted reinsurance markets, limiting carrier ability to transfer portions of their risk.
Narrower Coverage Terms
Policies may come with more exclusions and limitations, which could impact the breadth of your coverage. Carriers also look to shift more risk to insureds, including higher retentions and reduced limits.
Navigating a Hardening Insurance Market with Your Insurance Broker
So, all of this begs the question: “what can I do to ensure my business is set up for success and I have the insurance I need?” Here are my thoughts.
Create a Line of Open Communication
Your insurance broker is your most valuable ally during times of market hardening. Maintain open and transparent communication, discuss your concerns, objectives, and any changes in your business operations that could impact your insurance needs. Put your strategy in writing to ensure you and your broker are accountable to a timeline and game plan. This collaboration allows your broker to tailor their advice and solutions to your specific circumstances.
Conduct Early Assessment and Planning
Being proactive is key. Start the renewal process well in advance of your policy expiration date. Begin as many as four months in advance of your renewal to ensure time for changes in strategy, market selection, and carrier loss control requirements.
You should also anticipate more insurance carrier questions and requests for detailed risk control inspections. Your broker can assess your current coverage and market conditions to determine the best strategy for renewing your policies. This early approach can help you lock in favorable terms and premiums before they increase further.
Mitigate Risk
Collaborate with your broker to identify and implement risk mitigation strategies specific to your industry and business.
Insurance companies are more likely to offer competitive rates to clients who actively manage and reduce their risks. With guidance from your broker, you can develop a risk management plan that demonstrates your commitment to safety and loss prevention. It’s critical to present your business as “best in class” when it comes to internal risk management efforts.
Conduct a Comprehensive Coverage Review
A hardening insurance market demands a thorough review of your insurance portfolio. Work with your broker to evaluate your coverage needs and prioritize essential policies while considering adjustments to lower priority ones. Your broker can help you find the right balance between cost and coverage.
Explore Alternative Markets and Risk Transfer Structures
Exploring alternative insurance markets, such as surplus lines or specialty insurers, can provide solutions when traditional carriers are less accommodating.
Captive insurance solutions, parametric structures, and multi-year contracts are also strategies gaining prominence in a shifting market. It’s essential to work with a broker who has the access and expertise to navigate these markets and find the coverage that best suits your needs.
Leverage Your Brokers Expertise
Insurance brokers possess extensive industry knowledge and established relationships with carriers. Rely on their expertise to negotiate on your behalf and secure favorable terms and pricing. Your broker’s ability to advocate for you in the marketplace is one of their most valuable assets.
Work with Our Experts
Navigating a hardening insurance market may present challenges, but Holmes Murphy can help. By working with us to develop a proactive strategy, you can navigate these challenges with confidence and position your business to thrive despite market fluctuations.
Have questions? Interested in talking with us. Reach out. We’d love to chat!
