By Becky Harding, CPCU
Director of Association Programs
JD Fulwiler & Company Insurance
To professionals in the insurance industry, a changing marketplace is something of a science. To the insurance consumer, a changing insurance marketplace can either be a pleasant experience or a time of uncertainty and stress. For example, when the market goes from a “hard” market to a “soft” market, consumers see their premium reduced steadily from renewal to renewal. Conversely, when the market moves from a “soft” market to a “hard” market, consumers see their premiums increasing — sometimes steadily and slowly, and other times quite sharply and suddenly. This can occur regardless of their company’s favorable loss history. The frustration levels abound in this environment, and suddenly, the strong insurance relationship is replaced with one’s questioning of his or her agent’s level of expertise and even sometimes a wandering eye to another agent with promises of lower premiums.
Which environment are we in at the moment? You guessed it…the hard one. Analysts and insurance industry experts are warning of an impending move from the soft market of the last several years toward the hard market. So, let’s take a closer look at what this means to the work truck industry — especially since even in the soft market, finding necessary insurance products can be difficult.
The hard market has many of the characteristics you may expect. One example is an increase in premium. Just as any other market fluctuation (e.g., gasoline prices), one carrier begins to increase premiums slightly. The other insurance carriers can compete in the short term because their prices are lower, but eventually, they also jump on the bandwagon because they see that they are perhaps leaving rates on the table compared to competitors. This is the point where it all begins, and prices drive themselves up. There are many financial reasons for this, including insurance companies’ investment profit versus underwriting profit. But at the end of the day, pricing is a mechanism that drives itself.
Another characteristic is underwriting criteria. In a hard market, underwriters demand more information from their representative agents about prospective insureds. Just the opposite of a soft market where underwriting can be quite relaxed, a hard-market underwriter will ask many more questions about potential risk. This could involve anything from requiring details about the building structure and its protection (sprinkler capacity, etc.) to requiring copies of the financials or even resumés of the principals.
This carries right into the kind of risk an insurance company wants to write in general. The diminishing appetite of insurance companies during a hard market can drive consumers from “admitted” to “non-admitted” insurance companies. An admitted company is an insurance firm that is licensed in your state — meaning that they must file rates with your state’s insurance regulatory body; are subject to your state’s insurance code (law); and their insureds are protected by the state Insurance Guarantee Fund. A non-admitted company is precisely the opposite of the above. In the hard market, what frequently drives consumers to the non-admitted firm is that company’s appetite for risk. The non-admitted insurer typically has more willingness to entertain the “riskier” type of client. However, although they may be willing to swoop in and write the risk that their more conservative counterparts aren’t, the non-admitted insurance company will likely be priced much higher.
What Can You Do?
So, what can consumers do while moving closer to a hardening insurance marketplace? Relationship, relationship, relationship. This may sound like a cliché, but in the hard market, it’s paramount. Develop a relationship with an agent that you trust, that you feel has expertise in your industry and with your risk in particular, and has access to many different insurance company avenues — both admitted and non-admitted. Also, finding an insurance company that is stable enough to stand by you is just as important as your agent relationship. During this transition to a hard market, this partnership will be of utmost importance. If you are properly represented by your agent, then your insurer will have a good feel for your operations, will experience your losses alongside you and will be more apt to weather the storm with you through the changing marketplace.
As with most everything in the world of commerce, the insurance industry is cyclical. So, a softer market will return at the end of this cycle, but exact timing cannot be predicted. However, with the proper tools and preparation, you can come out of this with less stress and frustration. The ultimate goal between agent and client is to make any transition, even those that are difficult, as seamless as possible. If you feel as though your current agent relationship doesn’t have the characteristics discussed in this article, now is the time to seek one who does.
JD Fulwiler is the official affinity insurance agency of the NTEA. Through its partnership with Travelers Insurance Company, JD Fulwiler provides NTEA members with underwriting, risk assessment and loss prevention services. For more information on the Business Insurance Program, visit NTEA.com or call 1-800-441-6832.