The vocabulary used differs, but most people in the insurance and risk management sector acknowledge that market conditions are changing.
Some call it a transitional market, to others it’s a firming or hardening market, and yet others call it an out-and-out hard market, but the rough translation is that average prices are going up in many areas of the property/casualty insurance market.
After a prolonged soft market, rates began trending upward in some lines, such as commercial auto, well over a year ago. But the past few months have seen accelerated and sustained increases throughout the market, according to both pricing surveys and anecdotal evidence.
Catastrophe-exposed property, excess liability and directors and officers liability are experiencing the largest rate hikes — with some problem accounts seeing triple-digit increases — but risk managers are getting little relief wherever they turn.
Some insurers are withdrawing from problem lines of business or cutting back the limits they offer or moving parts of the limits they offer further up coverage towers to “ventilate” their exposure. And it’s not just in the United States. Risk managers in Europe, too, are seeing sustained increases in the cost of their commercial insurance programs for both their European and U.S. exposures.
In London, some underwriters are frustrated that Lloyd’s of London premium caps are preventing them from writing even more business at lucrative rates.
About the only exception is workers compensation, where rates are still decreasing. Given the profitability of the line for insurers, further decreases seem warranted.
How long the transitional/firming/hardening/hard market will last is anybody’s guess. Overall, the industry remains flush with capacity, and while insurers appear to be lockstep in the march for higher rates, history would suggest it’s only a matter of time before a few break ranks in pursuit of market share.
But for now at least, risk managers must face up to market conditions they haven’t been troubled with for years.
There are no easy answers to the problem, but a multipronged approach is needed. As we report on page 8, there are numerous ways that savvy risk managers can dull the pain of a hardening market: Better presentation of risks, improved communication with markets, reviews of coverage needs, taking higher deductibles or self-insured retentions, greater use of captives, reaching out to previous insurers, and looking at quota share or facultative placements can all help.
But if insurance is a people business, then now is the time for communities of risk managers to help each other out. There will always be some competitive concerns, but the relationships that have been built up during the good times should bear fruit as veterans and relative newcomers assist each other in navigating the market with both tried and trusted techniques and innovative new approaches.
