Preparing for the Hard Market
The insurance marketplace is a funny place; pricing and availability can appear and disappear seemingly at random, and predicting changes is more an art form than a science. Some years, insurance buyers benefit from falling costs and expanded coverage. Other times, when markets harden, business owners must make tough choices regarding their insurance and loss control programs. Understanding how business owners and risk managers can prepare for an insurance “hard market” —and putting those preparations into practice—can help your firm maintain a strong financial position complete with adequate protection for your organization.
Insurance Cycles
The insurance market waxes and wanes in unpredictable cycles, vacillating between hard and soft markets. When insurance pricing is stable or falling, it is referred to as a soft market. Soft markets have generally predominated in recent decades. Hard markets,
on the other hand, are characterized by quickly rising insurance premium costs and shrinking capacity by insurers. During hard markets, insurance buyers are often forced to forego excess coverage, sacrifice investments or revise budgets to accommodate skyrocketing insurance costs. In order for a market to be considered hard, prices must generally increase an average of 15 percent across the board; these sudden swings are unpredictable, and can greatly affect your ability to protect your business. Hard markets have been surprisingly rare—occurring only three times during the last half century—but they often occur quite suddenly and without much warning. The last hard market, from 2001 to 2004, was largely precipitated by the events of 9/11 and exacerbated by the massive losses associated with Hurricane Katrina. Even though the market truly hardened
in 2003, the conditions for hardening existed as early as 2001. Those same precursors, namely diminished reserves held by insurance carriers reemerged in the insurance marketplace in 2011.
When the Market Hardens…be Prepared for Changes
Even the most prepared organizations will have to accommodate the changes that come with a hard market. You’ll see, after years of insurance premiums declining, the market is beginning to show signs of increasing. According to the Council of Insurance Agents & Brokers, the last quarter of 2011 saw an average of 3.1 percent of price increase for small businesses. Business owners who pro actively address risk, control losses and manage exposures will be adequately prepared for a hardening market.
Your Relationship with your Insurance Agent
Making sure that your Agent has access to multiple Insurance Carriers, and has built strong relationships with those Carriers, can help provide leverage for you during difficult times of market upheaval. Your Agent is there to represent your organization when negotiating coverage’s and premium’s with Insurance Carriers. It is imperative that you address any concerns about your insurance with your Agent so they advocate on your behalf during the hardening of the market.
Contact us at 877-352-2121 if you have questions on how the hardening of the market could affect your organization.
