By Ken Kukral
The long awaited market change may finally be upon us. Depending on whom you ask and depending on what indicators you follow there are differing opinions. Some of the services that monitor pricing are seeing minimal pricing drops or premium leveling. Whether this is temporary lull or a market turn is yet to be determined. The expected reinsurance pricing increases that were expected 7-1 didn’t happen. We will see if they increase on 1-1.
Either way you need to prepare your agency for the change. Many underwriters with your agency or insurance carriers have never been through a market turn and will be looking to the more seasoned individuals for some guidance. While every market turn is different they are a number of things that are similar. How you react to the changes will determine how you are able to capitalize on them.
So how can you prepare?
1. Client education – It is amazing how short the memory is of many insured’s when you look to put through a small price increase. They don’t remember the numerous price drops over the years and it may be worth your while to remind them. A short explanation on the market cycles will let them know that the decreases were more of the market cycle and less that the insurance company thought they were a fantastic risk and deserved a price decrease. You may not want to put it in those words but you get the point.
2. Discuss the future increases with your client. If they “expect” them, they will be less likely to want to shop their insurance program just because they had a small price increase. This has everything to do with managing expectations.
3. Discuss their loss ratio with them. When the market turns, accounts with poor, deteriorating or mediocre loss ratios will take the largest increases. Implementing loss control, risk management and increasing their retention levels will pay dividends in the long run. Compliance with carrier recommendations and upgrading life safety systems will also help.
4. Discuss what is important in their program. When they want to look at reducing coverage or coverage extensions you will want to remind them on what the important components are of their program and look to cut elsewhere.
5. Communicate with your markets. Talk to them about what to expect. Talk to them about changes they see on the horizon. If there are classes of business they may get out of, find out early and work on moving those accounts. If you get word of what kind of price increases they plan, inform your clients. Make sure you are aligned with carriers who will have capacity in the future and take a long term approach. You will also want to know if they will be cutting commissions as the market hardens. That may make some difference in your long term strategy.
6. Upgrade the quality of your submissions. While this should be important no matter what the market is, it is even more important in a hard market. Underwriters will be increasing the underwriting they do on all accounts and you will need to show your clients in the best manner possible. You will also want to increase your lead time so that markets will have sufficient time to underwrite the account and you will have reasonable time to negotiate the best rate and terms available.
7. Look at clients who you want to “fire”. While you should cull your accounts on a regularly basis it becomes even more important when the market turns. If clients take a significant amount of your time, are unreasonable and are not cooperative with your efforts to improve their risk profile, consider sending them down the street. It will take more effort to market and negotiate the best terms for your client as the market hardens and accounts who take an inordinate amount of your time will cost you money.
As I mentioned, market turns are different each time. It may harden by line of coverage. Right now, Homeowners and workmen’s compensation are under the most pressure to increase prices. If a couple more disasters hit this year, then property rates will be more likely to increase. By communicating with your clients and carriers you will be ahead of the game and be in the best position to anticipate the future changes.
Last piece of advice, the market is what the market is. No excuses. Make the best of your situation no matter where the market stands.