Insurance Market Hardening: Facing a New Insurance Environment in the Economic Downturn

Over the last few months, we have seen a number of blog entries and articles talking about the possibility that we could be facing a hardening insurance market as soon as late 2009 and early 2010. With insurer credit ratings and financial strength ratings down, investment earnings very low, claims increasing and a continuing difficult economic environment, property and casualty insurance rates are certain to firm up in the coming months.

Insurancenewsnet.com provides the following list of reasons why the market is expected to harden:

Lower Underwriting Profit
Increasing Combined Ratio
Lack of Investment Income
Increased Catastrophic Losses
Return on Equity Falling
Reinsurance Hardening
Reductions/Capacity (decreased surplus of underwriting capacity)

Small to medium-sized organizations can help to prepare for the hardening insurance market in a number of ways.

Remember that the market is cyclical and that it will always harden usually after three to five years of favourable market conditions. The easiest way to prepare is to plan for it by maintaining budgets at the upper end of the market cycle.
Meet with your insurance broker to discuss your options. Get advice on whether to stay put with your existing insurer or if it’s time to shop around.
Work with your broker to analyse your insurance program. Make sure your coverages and limits are adequate but not excessive.
Consider higher deductibles. Your broker can be very helpful here. Ask for premium quotes at different deductible levels. Often a higher deductible will mean lower premiums and most companies carry deductibles way beneath the point at which they’d make a claim.
Risk management is key. Identify all of the things your organization is already doing to make your company safer and to reduce losses. Make an inventory of them and give them to your broker.

This is a very short list of first steps to prepare for the insurance market that’s coming. For much more information check out ClearRisk’s free eBook – it was written to be a very easy guide to reducing insurance costs for lay-people.