Let’s just dispense with poetry and say it: 2020 was a heck of a rough year for everyone, including insurance companies. So, it probably doesn’t come as a surprise to anyone that the Commercial Property/Casualty Market Index for Q3 2020 provides evidence for an increasingly hardening insurance market.
This means underwriting restrictions are getting tighter for insurance companies, creating premium increases that average 11.7 percent across all size accounts, up from 10.8 percent in the three months prior.
No one likes a premium increase, especially if they haven’t had any claims to drive up costs, so many business leaders are asking why the market is hardening and what they can do to avoid paying absorbent premium increases.
Causes for a Hardening Market
It seems like no one is safe from this market trend as premiums are increasing for all lines of business, including workers’ compensation, and some lines of business are seeing average increases of as much as 22.9 percent (umbrella policies). Other lines of coverage most impacted include Commercial Property, Commercial Auto and Cyber Insurance.
Auto has seen a rise in inattentive driving related accidents and cost of repairs. Cyber risk underwriting is at an all-time high with increased cyberattacks related to an uptick in remote internet activity during COVID-19. And property coverage has been hard hit with significant damage, namely vandalism and fire, caused by outbreaks of social and civil unrest.
It would be easy to blame nearly all the increases on payouts related to the economic and social impacts of the COVID-19 pandemic, but that isn’t the only crisis Americans faced this year. California and Arizona saw a record-breaking fire season, a derecho (basically a land hurricane) caused nearly $7.5 billion in damage across the Midwest, and the usual natural disasters like tornados and hurricanes accounted for another $8.5 billion in damages.
And yet, that’s still not all. The piece of the puzzle that is often forgotten is interest rates. Rates at a historic low are great for mortgages and loans, but they put a lot of pressure on insurance carrier pricing. Insurance carriers make money on underwriting profit and investment income (the cash they hold for a rainy day and their “float”). When interest rates are low, so is investment income, resulting in higher premiums to ensure payouts can be properly made in the event of a claim.
How Can You Minimize the Impact for Your Business?
The reality is that you cannot completely escape market trends. You can, however, take action to ensure you are getting the best rates possible for your situation. Make sure you carefully read your policy language and find a trusted advisor to help you understand it. Choose an advisor who can help you navigate the changing industry and guide you to the best policies for your goals.
Choosing the Right Partner
The untold story is that, even in a hardening market, insurance carriers still want to write new business. While McClone doesn’t have a “silver bullet” to magically make all the external factors that influence pricing go away, we can provide client advocacy to help minimize the impact of external pricing pressures on our clients.
When it comes to the best coverages and markets, we prefer to understand and identify the unique risks our clients face before making recommendations. Our risk identification platform is designed to identify specific areas for potential policy gaps, risk mitigation strategies and cost containment opportunities.
Through our RiskMAP™ process and longstanding relationships with our carrier partners and underwriters, we have been able to help our clients maintain favorable renewals during all market conditions.
Consult with our experienced team of strategic risk advisors today and feel confident that you are proactively choosing the best coverage to protect your future at the best price available.
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