As most insurance professionals know, the insurance market is a cyclical one. However, while the movement from “soft” market conditions – where insurers compete to win business by cutting premiums, relaxing underwriting criteria, and offering broader coverage – to a “hard” market environment, where underwriting profitability is reduced, is a natural one, the current market is not just another typical rotation of this cycle, according to Navacord’s latest “Hard Market Overview” report.
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This hard market is unique because it’s occurring amid the coronavirus pandemic, which has upended economies around the world and necessitated a massive change to many businesses’ operations. As companies closed their doors during lockdown periods or reduced their operations, “they looked to their insurers for premium credits and payment deferrals to help mitigate the impact of reduced revenues and cashflow,” noted the Navacord report, adding that in response, “Insurers stepped up to provide these supports – putting pressure on their own revenues, while also having to absorb the impact of pandemic-related claims across several lines of business.”
Other factors outside of the pandemic are likewise weighing heavily on the insurance marketplace. These include a withdrawal of capacity in response to changes in risk exposures, a significant increase in the frequency and severity of global natural catastrophes, alongside a continued increase in man-made property damage losses, and, last but not least, a sharp rise in severity for liability losses, known as social inflation.
Brokers working in the current hard market can turn to Navacord for a detailed playbook on how to best navigate the rocky road ahead, with Navacord’s broker partners already putting this guidance into practice in their own work.
“In terms of coverage, there’s been a pullback in capacity since markets are not putting up the same capacity as they once were and coverage is not as broad as it used to be,” said Patty McNeil, vice president of commercial insurance at Jones DesLauriers, a Navacord broker partner. “What this does is it drives pricing up – there’s reduced coverage at an increased price, so clients are paying more for a lot less. It also increases the work involved for brokers since we have to go to more markets to find coverage.”
To meet their clients’ insurance needs in this unique hard market, brokers should create better submissions, according to Navacord’s “Hard Market Playbook.” Right now, insurers are being inundated with submissions, which means that underwriters are looking for those that have the most complete information and are the easiest stories to read.
Accordingly, recommended McNeil, “Ensure that all the information is there, and tell a great story about your client and why that insurance company should partner with you in this risk play over the next year. Make an excellent submission that takes care of any potential back and forth questions that may come up.”
Besides getting critical information about insureds into the hands of underwriters, crafting standout submissions also entails differentiating that client (and the broker’s brand) and implementing a three-phase submission process, while paying special attention to the client’s history of claims and any changes and improvements they’ve made in terms of risk control.
The second key piece of advice for brokers is to get optimal renewals. McNeil advises that brokers continue having conversations with key underwriters and involve senior leadership at their own brokerages to discuss submissions and markets before hitting the 90-day mark, at which point they should be making the submission.
Moreover, “Get accurate information by speaking to clients so that there are no surprises,” said McNeil, adding that brokers can also try benchmarking clients against others in their industries so that they truly understand their risk exposures and why they’re receiving certain premiums, as well as terms and conditions.
Communication with clients is particularly crucial considering that many businesses have adapted their operations to the ‘new normal.’
“Our hospitality clients in Ontario have required flexibility in their coverage,” said McNeil. “People have tried to be really creative, from night clubs becoming fine dining establishments, to restaurants offering take-out.”
She continued: “Communication is key in this environment to make sure that the client is letting you know what they’re doing now. We may only have renewals once a year, but we’re having multiple touch points with clients on that renewal so that we’re getting the most up-to-date information.”
Along with this guidance, Navacord recommends that brokers focus on building better relationships with insurers and underwriters, and offers up a series of tips that will help maintain these important bonds during the crisis. Primarily, brokers need to keep in mind that many professionals in insurance and beyond are experiencing challenges, so they should be thoughtful in their submissions and their overall contact with partners.
“One of the things I’ve always told staff is to remember that the underwriter is a person, too. They’re navigating the same difficulties in a different way, and they may not have authority to make decisions, so make it as easy as possible for them to say ‘yes’ to a submission,” explained McNeil. “We need them – we’ve been used to being on the other side of the table, wielding that sword, but now they are [in that position], so we need to work together.”
