Hardening insurance markets are now a fact of life in Canada and the world, according to a report from Swiss Re. Even before the COVID-19 crisis, low interest rates were severely undermining the profitability of the insurance industry. Further rate cuts to help shore up the economic recovery are only going to exacerbate the challenges. Without significant price increases the insurance industry will not be well positioned to meet the need for insurance protection.
Premium growth has been negatively impacted by reduction in policies due to reduced business activity from the pandemic. However, commercial insurance prices have been increasing due to lack of availability and increased claims costs. Some insurers have hiked prices dramatically or withdrawn completely for Covid19 threatened businesses.
As a result, we’re seeing less competition among carriers, reduced capacity and lower limits, more stringent underwriting criteria and, most important to the end customer, higher insurance premiums.
Preparing your customers for the hard market
It’s no surprise that customers are often taken aback by drastic premium increases that aren’t in line with inflation. Brokers and agents need to do their best to explain to customers why exactly premiums are going up, describe market conditions, and quell any concerns they may have. More time should be spending more time on renewals and new business and increased efforts to find the most competitive rates for customers.
Many brokers and agents have never seen a hard market and they need to be prepared to manage it better. Brokers, agents and underwriters must invest the time necessary to become as familiar as possible with market conditions and be as informed as possible to really show their value.
Opportunity exists for growth
With rising prices and reduced availability, some insurers see this as an opportunity to selectively write new commercial lines business. Proper risk assessment and higher rating can provide selective profitable accounts when competitors are not able to offer renewals due to wholesale elimination of classes of business or overall enforced price increases not due to claims. Lloyds and other insurance wholesalers are growing new business taken from regular markets who are over selecting and dumping accounts. By applying higher pricing and some stronger underwriting terms, wholesale markets are growing business that could have stayed within the regular market.
There is an opportunity for small local insurers to cherry pick commercial business from the larger national insurers who don’t have the time or desire to review pricing and risk on an individual basis. Brokers are supporting those insurers more than they did in the past and will continue as the pandemic eventually subsides.