What brokers should do in a tough insurance market

What is the difference between the “hard insurance market” and the “soft insurance market”?

The insurance industry is known to fluctuate between hard and soft market cycles.

A hard insurance market has resulted in higher premiums, reduced ability of insurers to underwrite business (both renewal and new business), stricter underwriting standards, reduced coverage, and the need for some insurers to focus on specific industries. It is characterized by reduced competition to exit the segment. completely.

A soft insurance market will result in lower premiums, more coverage by insurers, lower underwriting standards, greater ability of insurers to underwrite business, and increased competition among insurers.

In summary, a tough market is when demand for insurance is high, but supply of available coverage is low.

By mid-2018, the insurance industry had spent over a decade in a soft market. However, since the fall of 2018, the market environment has been tough.

What is causing this tough market?

A hard market will inevitably follow a soft market, as the risk not written at an unsustainable low price must ultimately be offset by a higher premium. After a difficult few years, the Canadian insurance industry continues to run at a loss on all fronts. Rising claims costs are outstripping insurers’ ability to recover in premiums and investments.

There are various factors that can influence the shift to the hard market.

• Increased frequency and severity of claims. Billions of dollars in claims due to a large loss or series of losses impact the amount of business insurers are able to underwrite in the future.

Over the past decade, Canada has experienced some of the most devastating natural disasters, including the 2016 Fort McMurray wildfires, the 2013 floods in southern Alberta and Ontario, and the 2020 Calgary hailstorm. was seen In 2021, insured losses from severe weather across Canada are estimated to reach $2.1 billion. Globally, Hurricanes Harvey, Irma and Maria caused insured losses of up to $200 billion in 2017.

• Low interest rates and return on investment. Insurance companies rely on both claims and investment returns to pay claims. As interest rates fall, insurers will rely more on premium income to cover claims costs.
• The impact of inflation on goods and services increases claims costs. People are seeing the effects of inflation in many aspects of their lives, and insurance is no exception. Rising costs and reduced availability of products and labor have resulted in more expensive and protracted claims.
• A year of low interest rates and lower insurance premiums due to competition among companies. As a result, existing premiums are insufficient for businesses to remain profitable.

How will the hard market affect insurance customers?

As a result of the market hardening, many insurance customers are experiencing higher premiums, reduced coverage and/or a more rigorous renewal underwriting process.

Some customers have been forced to find new insurers because their current insurers have decided not to offer renewals for existing policies. Yes, and in extreme cases, some customers are no longer able to find suitable insurance.

how long does it last?

It’s difficult to predict how long each market cycle will last, and no one can say for sure when this difficult market will end.

Some businesses, such as property and casualty insurance, quickly entered the hard market. They are starting to level off and are expected to continue that trajectory this year. Other classes, such as certain financial and professional areas, are expected to remain unchanged or continue to be enhanced over the next year or two.

Ultimately, the end of a tough market comes when the right rates are consistently charged and insurers earn more than they pay in claims.

What can insurance brokers do in this tough market?

From an insurance broker’s perspective, there are steps you can take to minimize the impact on your customers, but you may need to prepare for some rate increases.

• Start the renewal process or new business submissions early. Give yourself enough time to review and obtain all relevant information from the client, put together a submission, contact the insurance company, obtain any additional requested information, and compare incoming quotes Please give
• Make sure your submission is complete, contains all required information, and is formatted for easy review by your insurer. Everyone has a lot of work to do right now, which can lead to longer response times. Anything you can do to make the insurer’s process easier and get your submissions on top will increase your chances of success.
• Take a proactive approach with your clients on loss management procedures. Discuss annual restructuring cost assessments, loss control examinations, and insurer loss control resources. Anything helps to make the client stand out from similar submissions.

Consider different coverage and deductible options. In soft markets, deductibles as low as $1,000 or $2,500 were common. In today’s market, clients may be comfortable with increasing deductibles in exchange for lower premiums.