The insurance market is always cycling between hard and soft. As it firmed up over the past few years, employers have had fewer low-price options.
Expect your broker to communicate with you about prices, says Craig Hassinger, president of SeibertKeck Insurance Agency. In this environment, even if it’s not a typical market turn, employers have had to take the initiative.
“Business owners need to proactively work to eliminate risk by putting in place policies and procedures that need to be formally written down and followed,” he says.
Smart Business spoke with Hassinger about how to react to the hardening market and premium increases.
What’s the difference between a soft and hard insurance market?
In a soft market, insurance companies look to gain market share and grow, so they take on more risk at lower prices. This is good for the insured to a point because there are more options. However, it’s called a cycle for a reason, and a soft market tends to quickly change — and competitive insurance options dry up. As insurance companies take on more underpriced risk, they start to get bad results, which eats away at their surplus and they pull back. This turn is usually predicated after a catastrophe such as 9/11.
What are the current market conditions?
Rather than just one catastrophe, the turn over the past few years is more because of a series of weather events. These property-driven stresses on the market have hurt insurers and pricing has firmed.
Previously, the insurance market turned on a dime from soft to hard — all rates across the board. In this market, only some prices increased. Property and workers’ compensation premiums went up, while liability and vehicle rates stayed pretty even. Insurance companies’ base portfolios are not making a whole lot, so they eventually have to make up the difference with larger premium increases or covering less risk.
Insurance companies have hit those with high-loss ratios hard with premium increases or non-renewing policies. In these cases, it can be hard to find replacement insurance. However, the best of the best are still treated well — businesses with low-loss ratios.
Have some industries been hit harder because of the unevenness of the turn?
Yes. A property manager who manages apartment buildings or commercial office buildings was probably hit harder. Other industries that rely more on liability and vehicle insurance may not have seen as much change.
Regardless of industry, make sure your loss control program is up to date and follow any risk management recommendations from your insurance company or broker. You also may need to increase deductibles or further spread your risk.
How can you combat the harder market?
Business owners need to do what’s necessary to become the best of the best. Put in policies and procedures to mitigate your risk and decrease losses. For example, employers can utilize systems like Fleet Watch, which closely monitors drivers and vehicle usage to provide data. Employers can drill down, find risks and eliminate them to keep rates down.
Employers also should use data provided by their broker to reach the right decisions, such as whether to raise deductibles or stop loss limits.
A good broker will help analyze everything from your current vendor/client contracts to previous losses. There might be risks you aren’t aware of. For instance, there could be a better way to create a contract so you push the risk out to a subcontractor. Communicate with your broker regularly. Brokers typically have a stewardship meeting well before the renewal to go over your policies and formulate a renewal strategy. If your renewal includes diminished coverage or added exclusions, then it may simply be a matter of pushback. You and your broker might tell your insurance company that if this is to be done, then something will be needed in return, while being prepared to look elsewhere. A proactive broker handles these negotiations for you.
Combatting this market cycle is about consistent loss control and having a strong business model. A little dose of long-term thinking combined with a professional insurance broker goes a long way in helping you navigate through the hard and soft market cycles.
