Over my 17-year career as a commercial insurance risk advisor and broker, I have experienced many cycles that have impacted the cost of risk for business owners including, the financial crises of 2008, Covid, global supply chain issues, a hardening commercial insurance market beginning in 2020, and now inflation combined with financial market instability.
What is a hard market and what does it mean to business owners? A hard market is the upswing in a market cycle when premiums increase and availability of types of insurance decreases. This can be caused by a number of factors, including falling investment returns for insurers and/or increases in frequency or severity of losses with their current insured clients. During a hard market insurance companies scrutinize the profitability of the business they write, which is oftentimes more important than adding new customers. It also means that underwriters are under pressure to make sure they have a lot more information about the risks their current clients face. When these market factors combine the result is less competition among insurance companies and higher rates for business owners.
What are the three things that business owners can do to mitigate overall cost of risk increases?
First, choose good insurance broker partners. Having a broker that is a specialist in your specific industry sectors will go a long way in mitigating increases in cost of risk.
Second, ensure you have a detailed plan for how your company will be represented to the insurance market and know the timelines or milestones that must be met to achieve the desired outcome.
Third, allocate the time necessary to collaborate with your broker and make sure they are armed with the best information possible to empower them to do their best work during the marketing process. This includes developing a narrative showcasing the company, identifying specific risks the company faces and details on how the company manages risk. The narrative should also include a summary of claims over the past five years. Choosing a broker that has dedicated claims and loss control services will only add value to this process. In the current hard market, underwriters will not spend time reviewing incomplete submissions. For businesses to get best-in-class underwriting results, the information provided to underwriters must be best-in-class.
Reach out to your Newfront team for more information on how to best protect your business.
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