Perhaps you have heard the terms “hard” and “soft” insurance market.” What do these terms mean to you, the insurance consumer? Today, business consumers find themselves in a “soft” market, which means pricing is competitive, coverage is generally broad, and insurance carriers are making concessions to obtain your business.
Many industries are cyclical, and the insurance industry is no exception. The insurance marketplace is known for its cyclical underwriting cycles, where carriers either want to acquire as much premium dollars (and hence insurance business) as they can write, or raise rates, stop writing certain riskier classes of business, and restrict coverage. For an Insurance Information Institute chart that illustrates the cycles from 1975 to 2006, click here.
For two decades absent the 2002 underwriting uncertainty after the
According to a broker with A.J. Gallagher, one of the nation’s largest insurance brokerages, July public entity renewals, often a harbinger for other business renewals, are coming in soft, with some public agencies seeing decreases, especially in property. Some carriers are taking more risk, or increasing what is known as “capacity,” which drives insurance competition.
But one large-scale event, whether weather-related or other, he warned, could change the insurance marketplace almost overnight. It pays for businesses to be prepared for this market change.
Here are some steps businesses can take to prepare for a hard insurance market.
- Forge a good relationship with your broker. The more complex your business, the more it makes sense to solicit competitive bids for your coverage occasionally.
- Try to lock in premiums for a multi-year period.
- Reduce your losses. If you must hunt for coverage in a tougher market, your organization should be able to point to safety policies and procedures that limit losses. If your workers’ compensation experience-modification factor is above a 1.0, for example, find resources to reduce your injury rate.
- Review your coverage carefully. How can you tailor coverage to better meet your needs? For example, should you self insure your business vehicles or take higher deductibles? Do you have all the coverage you need? Perhaps you are a small retail outlet with ten employees. You have never purchased employment practices liability because you treat everyone like family. With a soft market, you can explore broadening your coverage to lessen your risk.
The insurance marketplace has been relatively stable for a long period of time. However, there are many uncertainties in today’s environment. This year is stacking up to be one of the worst for tornado losses in many years. Inflation is climbing. Terrorism continues throughout the world. All these factors contribute to rate instability.
While most insurance professionals feel that the insurance industry will continue today’s soft trend for the foreseeable future, no business owner can afford to be in a losing position when it is time to negotiate renewals.