The commercial insurance industry goes through market cycles.
A soft market—which is sometimes called a buyer’s market—is characterized by stable or even reduced premiums, broader terms of coverage, increased capacity, higher available limits of liability, easier access to excess layers of liability, and competition among insurance carriers for new business. On the other hand, a hard market—which is sometimes called a seller’s market—is characterized by increased premium costs for insureds, stricter underwriting criteria, less capacity, restricted terms of coverage, and less competition among insurance carriers for new business.
The reality is that other than a short hard market following the 9/11 attacks, the market has been fairly soft for the last two decades. This began to change in 2019. The hardening increased during the last two years of the pandemic and continues to accelerate into 2022.
WHAT DOES THIS MEAN FOR YOUR INSURANCE PROGRAM?
First of all, the hardening market of the last few years has been more directly targeted than in the past, with certain regions, industries, or lines of business bearing the brunt of the change. Here is what we’ve been seeing in Central Pennsylvania the last few years.
- Cyber Insurance: Without question, this has been the line of insurance that has faced a true hard market more than any other, and it’s happened very quickly over the last year or two. In short order this coverage went from being readily available with little underwriting and low cost, to dramatically increased underwriting, lack of availability for businesses that aren’t employing comprehensive cybersecurity tactics, and renewal pricing increases of 20%–100%. We’ve had clients that we simply couldn’t get renewal coverage for, or clients that we’ve presented with 30%+ premium increases—and we’ve had to tell them that was a pretty good option. While we’ve seen signs of the Cyber market leveling off, I think it still has a long way to go until it stabilizes.
- Commercial Auto Insurance: Even in the midst of overall soft markets the last 5–10 years, Commercial Auto has been consistently hardening, with premiums rising industrywide for the last 41 quarters. Yet despite the rate increases, the Commercial Auto space is still largely unprofitable for insurance carriers. This doesn’t bode well for future pricing, which we fully expect will continue to increase. The reasons behind the hard Commercial Auto market include an increasing number of accidents, litigation trends, the rising cost of vehicle repairs, and medical treatment inflation. The extreme inflation in the cost of vehicles during 2021 has only thrown gas on this fire as the cost of repairing a vehicle, or worse, paying for a totaled vehicle has accelerated dramatically.
- Umbrella/Excess Liability: The cost of securing additional layers of Liability coverage is definitely rising, especially when we look to move beyond the $10 million level. The capacity for carriers to take on the risk of catastrophic liability incidents has diminished, and premiums have risen. This is especially true for businesses with large fleets, or extra-heavy vehicles. This hardening can be attributed primarily to “Social Inflation,” which is a fancy way of saying that juries are becoming more apt to give extremely high awards to plaintiffs, resulting in large Umbrella/Excess Liability claim payments that carriers weren’t anticipating.
- Commercial Property: In our agency’s renewals so far in 2022, Commercial Property is the line of coverage that has surprised me the most in terms of premium increases. Even clients with clean claim records in areas not prone to weather-related disasters are getting increases in the 5–10% range. While there are numerous factors at play here, the most likely culprits are the significant amount of natural disasters nationwide, including fires, tornados, hurricanes, floods, and unexpected cold. These events drive up the cost of Reinsurance for all insurance carriers, meaning that even in an area like Central Pennsylvania, which is removed from many of these risks, rates still get impacted. Inflation is also playing a role in Commercial Property increases. The cost of clean-up, repairs, and reconstruction has gone up significantly, resulting in higher claim costs.
- Silver Lining? Workers’ Compensation: In contrast to most other lines of coverage, Workers’ Comp has been stable or even decreasing over the last five years, and it appears that this trend will continue. For many businesses, Workers’ Comp is the largest portion of their Commercial Insurance premium, so the fact that this has remained stable has been critical in helping offset increases in the rest of their insurance program.
SO WHAT DOES THIS MEAN FOR YOUR BUSINESS OR ORGANIZATION?
In a hardening insurance market it becomes more critical than ever to:
- Identify your exposure to losses.
- Employ loss-control solutions to minimize these exposures.
- Build a company culture focused on safety.
- Manage claims as efficiently as possible.
Taking proactive steps like these in order to keep your claims as low as possible is your best strategy to avoid the most unfavorable aspects of the hardening market.
In addition to implementing the above risk-management strategies, it’s important to work alongside an insurance broker who you can trust to look out for your interests and work hard for you. Your broker should guide you through the decision-making process and find the right strategy for exploring, positioning, and presenting your company to the insurance market to get the best-possible quotes. This is what we do here at BCF Group, and we would love to talk further with you to discuss how we can help your organization.