We are in a challenging insurance marketplace—with little industry experience available to effectively navigate the situation. Here’s how we see it.
The last broad-based, challenging market was 2001–2003, resulting from the September 11 terrorist attacks in 2001. Since that time, there has been an infrequent, coverage-specific bump, such as Hurricane Katrina in 2005. This pricing bump for the most part was contained in the price-challenged insurance arena.
This year is proving to be price-challenged in most areas, in varying degrees by line of coverage. D&O and property have been leading the way, but are now getting challenged by marine cargo and aviation liability. Umbrellas, or first-level excess, are getting increases, but more importantly, they are looking for higher attachment points due to continuing deterioration in automobile loss experience.
These changes are coming about for various reasons—but the key question at hand is how to best manage and minimize their impact.
Due to the length and softness of the market, the triangle of client-broker-underwriter and their skill sets have changed. This group has become more process-oriented without the training to meet the current market hurdles.
This where the paintbrush effect comes into play
- The underwriters are instructed on what premium increases to achieve—but without guidance to make underwriting judgments. This leads to them applying the paintbrush effect to all risks regardless of the loss experience. Because of the pricing changes across the industry, they are receiving more submissions than they are staffed to handle and are feeling overwhelmed. Also, a more disciplined underwriting process is demanding complete submissions with more detailed information that was overlooked in prior years.
- The brokers are in between the client and underwriters, and are used to delivering rate reductions or flat-rate renewals. The most important activity now is to keep their clients aware of the market trends so they can prepare their management teams and not surprise them. Beyond that, less experienced brokers need to solicit the experience they lack from others within their organization who have navigated these choppy waters previously.
- Due to the soft market conditions, some clients became less focused on the elements of pricing (i.e., exposures, coverage, etc.) and need to reeducate themselves on these mechanisms for their 2019 renewals. This is necessary to properly communicate internally within their organizations.
The leverage has shifted
For the first time in many years, underwriters have the upper hand—and will look back on how they were treated by clients, including their brokers, during the lengthy soft market.
Following are a couple excerpts from insurers.
- “While pricing has been rising, we have also been shaping our portfolio to reduce risk as well as improving terms and conditions, which should result in a better-performing book.”
- “We haven’t increased our positions or exposure, but we have received more premium.”
- They have been culling poorer risks to the surplus lines marketplace—and have been more disciplined in writing new risks.
Let us know if we can help!
These changes are coming about for various reasons—but the key question at hand is how to best manage and minimize their impact.
For the first time in many years, underwriters have the upper hand—and will look back on how they were treated by clients, including their brokers, during the lengthy soft market.
DISCLAIMER
The information contained in this report was obtained from sources which, to the best of the writer’s knowledge, are authentic and reliable. Arthur J. Gallagher & Co. makes no guarantee of results and assumes no liability in connection with either the information herein contained, or the safety suggestions herein made. Moreover, it cannot be assumed that every acceptable safety procedure is contained herein, or that abnormal or unusual circumstances may not warrant or require further or additional procedures.