A year ago, it would have been hard to imagine a world that looks like the one we are living in today. Pricing in the commercial insurance market was already “hardening” for a number of reasons, and the spread of COVID-19 has compounded the situation, making this the worst market for insurance buyers since 2001. As we attempt to safely navigate the unchartered waters that have come to be known as 2020, Graham Company is addressing these unique challenges just as we do any other – head on, and with a proactive approach to risk management.
The Hard Market:
One significant factor driving the hard market is the fact that hedge funds, private equity firms, and other third parties have begun funding the plaintiffs’ bar, in pursuit of outsized jury verdicts. This Third-Party Litigation Funding (TPLF) has led to plaintiff attorneys taking cases to trial, and to jury verdicts that far exceed the settlement amounts that were routinely agreed to in the past. This process has significantly increased the costs to defend liability cases, even when negligence is questionable.
In addition, you may have heard the term “social inflation,” referring to the increasing propensity for juries to award eye-popping amounts to plaintiffs. Part of this is no doubt due to the plaintiffs’ bar becoming more sophisticated in influencing juries in order to maximize awards. However, juries – regardless of their age, sex or political persuasion – are angry and increasingly holding corporations (both large and small) accountable, granting ever-increasing awards.
The list of factors contributing to the hard insurance market goes on, of course. This year has seen a continuation of ongoing, severe weather events (i.e., 26 Named Storms this year so far), causing massive insurance company losses. In fact, Q1 and Q2 North American losses are estimated at $30 Billion.
These are just a few of the many factors that were creating a hard market prior to COVID-19, which has changed almost every industry. Adding to this mix is the unknown future impact of COVID-19: How much worse will it get? How much longer will it go on? Will there ever be consensus about how best to contain the spread? What about extreme instances of civil unrest and property damage? How do insurance companies underwrite risks they have never seen or experienced before? How do you protect yourself from what you cannot see, know or understand?
These existing risks do not address the emerging risk of social media and its potential for accelerating losses. Local issues, or potential claims, have the ability to become global news, gain attention and “go viral.” Insurance companies are unsure about the long-term impact to their bottom lines of this new phenomenon, and are pricing insurance products accordingly.
Our Approach:
In these uncertain times, Graham is taking a proactive stance in order to increase the amount of choice and control our clients exert in the insurance marketplace. Boasting an almost 1:1 employee-to-client ratio makes us unique from other brokers, who typically service 4 or 5 times the number of clients per employee.
Graham clients benefit from full transparency with regular updates on current market trends and how those developments impact their business well before renewal. Safety protocols, loss control plans, data analytics, contractual risk transfer and claims handling procedures are always critical, but have taken on an even greater significance given the market upheaval. The end result of this total risk management approach, which we call P2RIMETM, is better pricing and terms from the market. The bottom line for the client: ensuring the broadest possible coverage available in the marketplace, at the best price.
In this hard market cycle, it is critical to ensure the insurance company accurately and completely understands your organization or business, your exact exposures to risk, and how you manage these exposures via various loss control procedures. Having a broker and risk management partner that understands your business – both where you have been and where you are going – and how to differentiate from your competitors can and should be used to your advantage when insurance company underwriters are inundated with new business opportunities.
It’s Not Just About the Price:
Insurance buyers are seeing rising premium costs and retentions/deductibles, along with liability limits being cut, and some carriers exiting the market altogether. In addition, many carriers are adding significant new exclusions or broadening existing exclusions in their policies. Premium, deductible structure and policy limits all matter, but it is the language of the policy that ultimately dictates the coverage provided in the event of a claim. If your broker is not carefully monitoring these new exclusions and the language in your policy, you may be paying more for less coverage at renewal. It is vital to have a broker that knows what language to look for in your policy and negotiate broadening coverages on your behalf.
In many cases, it is a matter of knowing the language to look for in the policy and negotiating for changes on the clients’ behalf. In other cases, it may mean choosing one carrier partner over another prior to renewal because of critical coverage that can be provided or that is excluded. Regardless, Graham’s goal is to ensure our client is educated and work as a team to make them a better risk to present to the market at the time of renewal, ultimately providing them the best options available in the marketplace. This is more important than ever in this increasingly hardening market.
