As New Jersey businesses across all industries continue along the unprecedented road to recovery as the pandemic continues to evolve, rebuilding operations and generating income are not the only challenges they face. Many operational risks remain. Insurance coverage to protect organizations against the financial impact of those risk exposures is a large expense in any business budget and today’s hard insurance market is going to keep the financial pressure on recovering businesses.
Getting through this challenging time requires businesses to have present themselves in the best possible light to enable their brokers to make the best-case scenario to insurers. This means that in partnership with your insurance advisor, demonstrate to the marketplace why they should want your business – that is, a good loss history and corrective measures taken to prevent similar losses from reoccurring, proactive risk management/transfer practices, proper safety protocols, and property upgrades.
In layman’s terms, a hard insurance market is the upswing in a market cycle when insurance premium rates are escalating, and insurers are disinclined to negotiate terms. Underwriting standards tighten and insurers closely monitor insurance rates and manage coverage capacity.
Underwriting losses, poor industry results, decline in investment income due to lower interest rates, an increase in natural disaster claims, social factors, such as “social inflation” of claims and once-in-a-century events such as COVID-19, are all factors directly contribute to the state of the market.
Through the remainder of 2021 and beyond, insurance buyers will continue to feel the effects of the hard market, which includes:
- Few carriers willing to quote
- Increased deductibles
- Reduced limits
- Coverage more restrictive
- Tougher underwriting standards
- Stricter compliance requirements on recommendations
On the property insurance side, water damage and catastrophic weather events have been costly for insurers while on the liability side, increasing claims for slips and falls, have led to expensive lawsuits. The economic fallout from the global pandemic includes lower interest rates, pushing premiums higher yet again as insurers can’t rely on investment behind the scenes to remain profitable. Additionally, concern relating to COVID-19 related liability claims is tightening the market even further.
We are seeing premium increases of 10% to 15% on “best in class” risks, while businesses with adverse losses can expect up to 30% in increases, and depending on the severity and frequency of claims, non-renewals are not uncommon.
What businesses can do
Within such an environment, underwriters carefully review submissions, questioning and reviewing every detail of information on the application. Together, with your insurance broker, work towards a professional submission that highlights the strengths of your risk management efforts and present yourself as a “best in class” risk.
Completing an insurance review and gathering information takes time. Here is what you can do to improve your situation in this hard market:
Be Proactive. Providing your updated information to your broker early in the renewal process will allow you to obtain your renewal terms sooner and address options with your broker.
Be Complete. Insurance underwriters have limited time to go back and forth with your broker requesting missing information. Assist by ensuring your file is complete.
Be Current. Improve maintenance, implement Risk Services recommendations, undergo an operational evaluation – underwriters favor and value clients that take care of their business.
In summary, the insurance market is firming, capacity is limited and is being used with more discretion. Contractual risk transfer has never been more important. Understand your claims and why they are occurring and while “best in class” risk will achieve best results, even those expect increases in today’s insurance environment. It is imperative to work with your insurance advisor to review your coverages and to understand what your P&C policies cover, what they don’t and the best ways to mitigate the individual and unique risks of your properties.
Joseph DeMeo currently is senior vice president, commercial lines manager and New Jersey branch manager with HUB International Northeast, responsible for the management of the Commercial Lines teams in throughout the state.