Property-casualty insurance rates are on the rise. The MarketScout market barometer stood at increases of 5% for both personal and commercial lines during the last quarter of 2022. The pain is especially pronounced in property coverage. Commercial property policies saw increases of 9.3% in that quarter, with risks in catastrophe-exposed areas up 25% to 30%. Homeowners insurance saw similar rate hikes.
Weather patterns grow more erratic each year, severe wildfire seasons persist in the west, and medical costs continue to climb. That means increasing rates may be here for a while. However, there are strategies agencies can employ to help clients deal with these difficult situations.
Wholesale insurance brokers, including those with access to the excess and surplus lines market, can be valuable resources. These brokers help retail agents find markets for risks with difficult exposures or unattractive loss histories. They often have in-house expertise in specific classes or industries and can help identify potential coverage gaps. And the accounts you place with wholesale markets today may grow to the point where standard markets will compete for them in a few years.
Some retail agents avoid the E&S market. Most state guaranty funds do not cover non-admitted carrier insolvencies, and the policies use unregulated forms and rates. However, in the last 20 years 274 admitted carriers have suffered financial impairments, but only one non-admitted carrier has.
In addition, their unregulated status means non-admitted carriers can bring new coverages to market faster than their admitted peers. The coverage your client needs may be available in the E&S market long before it is in the standard market.
Ideally, the time to form strong relationships with wholesalers is before you need them on a daily basis. When markets harden, these brokers get swamped with submissions. They may be more inclined to prioritize those from agents with whom they already have trusting relationships. Agencies that don’t have these relationships yet should start building them now.
Look for wholesale brokers with sound, easy-to-use technology platforms. Some offer online quoting, and many promise to turn quotes around in 24 hours or less once they have complete submissions.
However, finding alternative markets may not prevent your clients from having to pay more. Careful review of their insurance programs and honest communications can help make delivering that news easier, or at least less unpleasant.
In difficult markets, the earlier you start the renewal review, the better. Some agencies review their commercial lines accounts at the six-month point in the policy term. This is the time to check in to find out whether your accounts are performing new operations, selling new products, expanding staff, considering new locations, and myriad other changes. Some agents also order insureds’ loss histories at this time, especially for Workers’ Compensation insurance, since rating organizations calculate experience modification factors based on the values of losses 18 months after inception of the last policy.
It can be tempting to cut corners on coverage to keep the price down, but this tactic can come back to haunt both insured and agent. Limits held artificially low or coverages not offered can result in future uninsured or underinsured claims. Always suggest proper limits for property coverage and higher limits for liability; the client can make the purchasing decision. Get client rejections in writing in case an uninsured loss happens later.
Lastly, discuss market conditions with your clients. They probably know about weather catastrophes, but they might not be aware of factors pushing up liability premiums. Honest discussions about what you are seeing in the market and alternatives they might explore may strengthen your client relationships. Some may still get angry and try to blame you, but many will appreciate your giving them the straight story.
Insurance is always more fun when rates are coming down and you can give clients good news. Until those days return, good relationships with clients and alternative markets will help your agency get through the rough waters.