Given the current economic climate, the insurance market has reached a crossroads. After nearly 20 years of a soft—or buyer-friendly—insurance market, we are moving toward a hardening market—one that is less friendly to insurance buyers.
While the effects of this hardening insurance market on businesses will depend on a variety of factors, many businesses will see premium increases for their insurance coverage overall. In fact, for some types of coverage, businesses may even see double-digit rate increases at their next renewal.
Historically, the most common contributors to a hardening market are catastrophic (CAT) losses, inconsistent underwriting profits, eroding investment returns, economic conditions, and the cost of reinsurance. However, 2020 has begun to present several emerging developments that will also impact pricing:
- Social inflation: Some of the rising costs of insurance claims are resulting from societal trends toward increased litigation, broader contract interpretations, plaintiff friendly legal decisions, and larger jury awards.
- Extreme weather events: Many specialists believe severe storms, extreme temperatures, wildfires, and flooding are the new norm. As these catastrophes become more frequent, the insurance industry and the economy will likely struggle to keep up with the losses.
- COVID-19: The full cost of COVID-19 has yet to be determined. However, if courts mandate insurance carriers to cover COVID-19 claims under certain policies (which the policies were not designed to cover), it could drive insurers bankrupt.
Each of these key factors are crucial in determining pricing, but situation-specific factors also drive pricing like loss history, the industry your business is in, proactive measures taken to prevent losses before they occur, and access to competitive insurance markets. Overall, pricing forecasts are anticipating higher increases as the accompanying chart shows:
Now more than ever, it is essential for businesses to take a proactive approach when it comes to their risk management efforts and their insurance policies. To help you navigate the hardening market, you first need a broker who understands your business and its unique risks and who will advocate on your behalf. Secondly, you need an insurance broker who can tell your risk story to insurance carriers in a way that will best position your business come renewal time. Finally, you need a broker who understands your industry inside and out, the dynamic insurance landscape, and how to provide targeted loss control solutions. +
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