What does a hardening insurance market mean for Advisors?
“We just renewed our coverage, and the best quote our insurance broker could get for us was 50% higher than what we paid last year. Nobody is willing to offer us good coverage. What can we do?”
This is how the call started, but it was far from the end of the road for this advisor. As we dug into the situation together, I found there had been a minor claim that had arisen in the past year, which led to their incumbent carrier declining to make a renewal offer to the firm. And let me say in no uncertain terms—this is a call that we can almost certainly expect to see more frequently in the coming years. Not because advisors are doing anything wrong (if anything, from my perspective, advisors nationally have been at their absolute best in these unprecedent and challenging times), but because volatility has increased—advisory clients have things overwhelming them from all directions, and overwhelm leads to doubt, frustration, and deteriorating communication.
For those of you that don’t know the term, a hardening market is when insurance carriers start to restrict the quality of terms—and affordability— that they have been offering throughout the low volatility regime of the past years. This can come in any number of forms: higher deductibles (retentions), higher outright premium prices, or restrictions on coverage itself. As a specialized insurance broker, it’s our job to watch this very carefully. We’ve been hearing anecdotally from a few underwriters over the past few years that they expect to see the insurance marketplace get harder, but just like calling a top in the stock market, it’s an idle forecast until we have the benefit of hindsight when we are well into the next cycle.
This year that forecast has definitively come true. The explanations for this are going to vary depending on who you ask. A generalist insurance broker will point to the obvious—pandemics, natural disasters, and geopolitical conflict. In other insurance markets, we sometimes see a spillover effect on premiums as carriers look wherever they can to solidify their balance sheet. The question for an advisor, then, becomes: why should my terms change? That is a simple and valid question that can bring us down one of many rabbit holes. The short answer is that we live in an interconnected world. Stress in one area can bleed into other arenas as the pendulum swings between “risk on” and risk off,” and insurance carriers by their foundational nature are focused on the rule of large numbers. This means they are always evaluating and estimating potential outcomes in advance of them occurring.
I’ll cut to the chase: here is what you can do to make sure you are getting the best support in a hardening insurance market. It’s a self-serving answer, but it’s unequivocally the right one: make sure you are working with a specialist who knows your industry as well as you do. It’s vitally important that they focus on your distinct, complex and involving space. If you have to explain to an insurance broker the difference between an IAR and an RR, or help them understand what fiduciary risk is, you are in the wrong place—and being in the right place with your risks has never mattered more.
I bet you want to know what happened with the advisor that called us at the beginning of this post. We went to market and advocated on their behalf with several alternative underwriters. We secured multiple offers. We ultimately were able to place them with a stronger carrier, at a price point 25% below the offer they currently had on the table. It looks like magic, but it’s not: the simple truth is that we can get these results because it is all we do, every day. We were doing it when markets were tranquil. We did it while markets were highly turbulent. And we’ll be doing it through whatever form the next cycle takes.
Written By: Chad Ramberg
Today’s BPI Advice: It is not just about pricing. Please, make sure you understand how you should expect to be treated in the rare, but very severe, event of a claim. Conduct a thorough coverage comparison with a specialist, this year. And have a plan for your renewal if we continue to see the market harden. Be healthy, strong, and shrewd.
Case studies, testimonials and other information on the website are for illustrative purposes only, and may not reflect the terms of any particular insurance policies nor the coverage of any specific claims. Box Professional Insurance makes no representations of any kind regarding coverage or the specifics of any policy or claim. See your insurance carrier and policy for details on coverage, exclusions and limits.