The insurance market is cyclical in nature and fluctuates between soft and hard markets. A soft market is considered a buyer’s market and includes stable premiums, broader terms of coverage, higher limits and it’s more competitive among carriers. A hard market is the opposite of all of that. Premiums typically increase, coverage becomes more restricted and it is less competitive with carriers.
The market has been hardening over the last several years and the global pandemic is helping to solidify this. As a result, businesses are now faced with tough choices regarding their insurance, making it all the more important to understand what to expect in a hardening market and how to respond effectively.
Even the most prepared organizations will have to adapt to the hard market, and businesses can expect to face:
- Higher premiums
- Increased scrutiny when it comes to underwriting (e.g., underwriters asking for more information regarding a business’s risk and characteristics)
- Coverage restrictions (e.g., increased retentions) or exclusions
- Conditional or nonrenewal notices
During a hard market, insurance buyers may face difficult decisions regarding their insurance coverage. The following strategies are useful in navigating shifts in the market:
- Review your insurance program. Above all, check that your policies account for your business’s greatest exposures. An understanding of your coverage ensures you’re not overlooking any exclusions and will help you secure the right policy for your operations. During a hardening market, it may be necessary to make adjustments to your policies. However, those adjustments shouldn’t come at the expense of the coverage you need.
- Bolster your risk management efforts where possible. Doing so makes your business more attractive to insurers. Your broker can also help you review existing policies and procedures, and make suggestions on ways to secure favorable quotes.
- Know your loss history. In a hard market, underwriters will be especially critical when reviewing loss trends. Be prepared to explain the factors contributing to a specific loss and the steps you’ve taken to mitigate future losses.
- Budget wisely and plan ahead. In some cases, premium increases are unavoidable, and organizations should be prepared. Businesses should budget accordingly and take insurance costs into account alongside their other normal expenses.
- Have the right insurance and risk advisor. During a hard insurance market, it’s vital to have a competent insurance professional advising your business. Be sure to partner with an advisor that has strong carrier relationships and knowledge of your industry.
- Communicate with your advisor early and often to determine how the hard market will affect your business. Starting the renewal process early can give your risk advisor more time to secure the best coverage for your business.
Business owners who proactively address risk, control losses and manage exposures will be better prepared for a hardening market than those who do not. RiskSOURCE is here to help you prepare your business for changes down the road.
Check out this month’s @RiskSOURCE for other trends and tips.
Commercial Risk Advisor / Knoxville Market