2020 is behind us, but the commercial insurance impacts of the year might be here for a while. Rates are up, underwriter appetites are down, and risks continue to evolve. The insurance market is hardening, or getting less favorable for policyholders, and business owners need to prepare for the impact.

Rates Are Trending Upward

One of the most obvious impacts of the hardening market is that commercial insurance rates are increasing.

According to MarketScout, the composite rate was up 7.1% in the fourth quarter of 2020. Some lines saw significantly higher increases. For example, umbrella coverage was up 12.7%, D&O was up 11.7%, professional liability was up 10.3%, property was up 9%, and commercial auto was up 8.3%.

The account size also impacted rate increases. Large accounts between $250,001 and $1 million saw rate increases of 9.3%, compared to the 6.7% increase seen for small accounts of up to $25,000.

Underwriter Appetites Are Down

The hardening market also impacts underwriter appetites.

When the insurance market is soft or favorable, insurers are eager to write coverage, making it fairly easy to get robust coverage with high limits. This is not currently the case. Capacity is down, and many insurers are using stricter underwriting protocols. This can make it harder for business owners to secure coverage and high limits.

Key Developments

The causes of the hardening market are complex. According to Investopedia, hard and soft insurance market cycles are common and may be inevitable. Economic conditions play a role. Changing risks can also impact commercial insurance marketing cycles.

Right now, many risks are emerging, evolving or growing:

• In employee practices liability insurance, calls for diversity and inclusions have put increased pressure on hiring and promotion practices. Possible claims may allege sexual harassment or racial discrimination.
• In property insurance, increased wildfire and hurricane activity are two major concerns. Business interruption insurance, often tied to property insurance policies, is also the focus on ongoing legal battles over whether or not coverage applies to pandemic-related losses.
• In commercial auto, nuclear verdicts and social inflation are a major problem. The American Transportation Research Institute says that jury verdicts increased 51.7% between 2010 and 2018. Also, although traffic deaths had been starting to decline after a sharp increase, the pandemic may have undone this progress. According to Reuters, data from the NHTSA shows a significant increase in traffic deaths when lockdowns ended over the summer of 2020.
• Cyber risks are also rising sharply, impacting cyber insurance policies and other policies that include cyber coverage. According to ZDNet, ransomware attacks increased 715% in 2020.

Employee Benefits and Rates

Employers also have to deal with rising employee benefit costs.

According to Healthcare Finance, Mercer’s National Survey of Employer-Sponsored Health Plans 2020 found that employer health benefit costs are expected to increase 4.4% in 2021. There is also a concern that costs will increase when employees finally get some of the care they put off during the pandemic-caused lockdowns.

How to Prepare for Renewal

Don’t wait for your policy renewal. The time to be strategic is now. There are actions you can take that can help you improve your risk management/insurance program. Get an early start. Your current insurance carrier or broker might not be the best option anymore. Because rates are increasing and capacity is shrinking, finding suitable coverage may take time. Start comparing your options early.

• Keep claims down. Having policies and procedures in place to mitigate risks can prevent claims and help your company fare well during times of stricter underwriting. Shore up your safety and loss prevention practices now, so you’re an attractive risk for underwriters.
• Are you working with the right insurance broker or advisor? Right now, it’s especially important to have a specialized, independent broker as your advocate and consultant.
• Don’t forget to assess your company’s benefits program. Employers’ health insurance costs are rising year-over-year with no end in sight. It’s critical that you work with a benefits consultant that is bringing creative options to the table annually.

Want Help with Your Commercial Insurance Program?

Hotchkiss Insurance can help. As an independent agency with more than 45 years of experience, we have access to top commercial carriers and can shop the market on your behalf. We’ll help you with your safety, claims, risk management and employee benefits. Our professionals are highly experienced and industry-specialized. Put our connections and depth of knowledge to work for you! Start the conversation.