4 Ways to Protect Your Business from Insurance Market Cycles

Market cycles are a fact of life in the insurance industry. As with many motives behind business, profit expectations are the key driver behind insurance market cycles. Enter the law of supply and demand. As profit expectations increase, more carriers flock to the market and capacity increases. With increased supply, pricing drops and we enter a “soft” market. As pricing drops, so does profitability. This causes a pull-back in supply and reduces capacity in the market, ultimately leading to increased pricing in a “hard” market.

For those who have been lucky enough to avoid the hardening market in the auto and excess lines, congrats! Throughout the past quarter, we have seen renewal quotes coming in with reduced capacity, increased rating, increased reinsurance and unfavorable changes in coverage forms. All signs point to a shift in cycle. So how fo you protect your business and current insurance program?

Here are four critical strategies that will best position you to avoid or at least reduce the impact of a hardening market:

Open renewal discussions early. No one likes surprises. Be prepared to project sales, payrolls and auto exposures early. Be ready to discuss open claims.

Get creative. With capacity reductions taking place, the traditional program (where one insurer takes the entire limit of an excess policy) may not be available. You may need to design a layered program or even a high attachment point to implement an effective program at a cost-efficient price.

Dig into the coverage forms. In times of hardening markets, carriers will attach additional exclusions that may have significant impact on your policy coverage. If rates are increasing, you don’t want to sacrifice coverage. The devil is in the details.

Know your experience. Helping underwriters understand your business operations, exposures and experience is vital in the design of a comprehensive insurance program. Communicating status reports on open claims and discussing new safety initiatives and controls all help position underwriters to negotiate best terms with their management and reinsurers.

While these four strategies will help shield your business from the volatility that accompanies changes in the insurance market cycles, partnering with a knowledgeable insurance agent who understands both the impact of insurance cycles and strategies needed to provide long-term stability will best position your business for success through an insurance cycle.

Contact any members of the McConkey team to learn more about market-sheltered products, such as captives, or to implement these critical strategies that will bring long-term stability to your business in an increasingly volatile market.

 

Kurt Gehman, CPCU

Author Kurt Gehman, CPCU

Business Insurance Executive
kgehman@ekmcconkey.com
717-505-3178

More posts by Kurt Gehman, CPCU