What You Should Know While Navigating Challenging Business Insurance Market Shifts
Marsh & McLennan Agency shares a predictive study to help create awareness of what is happening in the insurance industry.
There have been drastic changes in the business landscape since the global pandemic began.
While many businesses struggle with cash flow, they are experiencing sticker shock come insurance renewal time - the result of a shift to a hard market - seeing premiums rise 20, 30, and sometimes up to 40 percent.
In a hard market, the demand for insurance exceeds supply. When this occurs, insurance rates and deductibles increase, coverage terms & conditions constrict, and carriers become reluctant to provide significant limits.
What follows is a brief breakdown of what's happening in the various insurance markets, and appropriate strategies for you - the business owner - to navigate to give you the best bang for your investment come renewal season. We encourage you to watch the embedded video to get more detail.
Claims typically occur due to hurricanes, flooding, wildfires, hail, and other natural disasters.
Because of high claim levels, and the overall downward turn of rates in recent years, insurance companies are suddenly not making money. Current loss rates are at 130%. For every $1 taken in, insurance companies pay out $1.30, which is not sustainable.
Because COVID-19 is an unknown, it has caused carriers to become even more conservative. Average "good" accounts see a 20% rate increase, but the range of rate increase is quite broad.
- Start reviewing renewals mid-year or earlier
- Provide quality data
- Have a range of plans in your strategy (Plan A, B, C)
- Explore risk tolerance early on
- Host multiple meetings with carriers to help tell your story
Casualty Market – Automobile, General & Excess Liability, and Workers Compensation
A significant increase in claim severity, including social inflation, third-party litigation funding, and punitive damages, has been a substantial contributor to the hardening liability market.
Emerging losses, insurance company consolidation, lack of new capital entering the market, "Quantitative" underwriting, and record-low interest rates are also additional contributing factors. Workers Compensation has been the only saving grace, as the prices are still reducing.
- Start the renewal process early (>120 Days Out)
- Work with Broker to create Best-in-Class Submission
- Include Risk Mitigation Detail
- Include Large Claim Detail
- In-Person (or Virtual) Underwriter Meetings
- Leverage broker analytics to reduce cost & optimize program
- Consider alternative program structures & captives (Large deductible/SIR programs, group captives or single-parent captives)
- Negotiate multi-year rate agreements
D&O, Employment Practices, and Cyber Liability Market
Private Directors' & Officers' Liability has hardened modestly over the past 12-24 months. Specific industries directly impacted are healthcare, restaurants, entertainment, and hospitality.
Underwriters want to see what organizations are doing to address some of the potential impact on financials as the obvious concern is around bankruptcy.
Increased pricing pressures in the marketplace are 15-20% in Private D&0.
Employment Practices clients have been averaging a 64% rate increase.
The reason for this is the hardening market conditions, which are more significant in individual states like California. The #MeToo Movement impact and COVID-19 concerns such as layoffs/furloughs/reduction in force and a return to work strategy have also contributed mightily.
Cyber Liability has been a soft marketplace until more recently due to the 148% increase in ransomware events.
As we have moved to the "work from home" environment, we have seen significant ransomware and phishing attacks increase taking place—rates hardening from 0-10% (previously flat to -5%).
- Network Security/Cyber Liability Best Practices
- Thorough submissions
- Underwriting meetings/calls
- Value carrier strength, experience, and reputation
Employee Health & Benefits Market Update
In the Employee Health & Benefits Market, an important safety net has been created in haste to reconcile COVID for employers and employees. Still, not all of the details were solidified, which has triggered a windfall of legislative updates. There is not a one size fits all solution.
Forecasting the COVID Financial impact for employers is seen as a positive impact for the near term, but the long term is yet to be determined. Marsh & McLennan Agency anticipates a hardening in 2021 as it relates to rates due to COVID.
Employers are considering how to return to work and accommodate proper safety precautions. Also, the employer's liability is to ensure the employee follows safety guidelines that include employee attestation that they are not sick and feeling well.
There is a focus on digital tools as employers are looking ahead. There is a reliance on the provider's digital offerings like telemedicine and changes in how benefit plans are designed and communicated. There is also a heightened sense of awareness around employees navigating financial and mental wellness.
Even if this may not be the news you were hoping for, it is essential that you educate on what is going on in the insurance marketplace.
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