How to Stay Profitable in a Hardening Insurance Market – NU PropertyCasualty360 | CarTailz

The insurance market is cyclical, which means it will eventually return to sunnier skies. (Mopic/Shutterstock)

The insurance industry is currently experiencing a hardening market. That is, the market cycle is in an upswing, premiums are rising and carriers’ capacity for most risk types is decreasing. While there are differing opinions as to what a hard market looks like compared to a soft marketthe underlying causes and effects are generally recognised.

Characteristics of a hard market include:

  • airlines that are suffering or expect to suffer significant losses;
  • airlines firming their fares and increasing premiums while curtailing their appetite for certain risks;
  • Stricter underwriting standards; and
  • Limited appointments of new agents and the general reduction in existing appointments.

Essentially, a tough market means insurers worry about how they’re going to make money. Let’s dive in why The market could harden What Insurance providers can expect and how You can continue to drive the success of your business and your customers.

Why is the market hardening?

There are countless reasons why the insurance industry could find itself in a tough market, the vast majority of which are completely beyond our control. Here are just a few of them:

  • climate change: Consumers face new risks due to the increase in weather disasters and natural phenomena like hurricanes, wildfires, etc. The inundation from Hurricane Ian is perhaps the latest devastation we can point to, as stories of people facing staggering losses without having bought flood insurance abound.
  • Inflation: Insurance carriers, like many companies, make money from investments. When the economy deteriorates, the profitability of those investments slows, and airlines have to find other ways to make up for lost revenue. This leads to higher tariffs and fewer risks taken, allowing airlines to take control of their finances.
  • Supply chain issues: Repair costs for assets such as cars and houses continue to rise due to problems in the global supply chain. As a result, claims amounts are higher and insurers have to pay their customers more than before to cover losses, increasing their costs.
  • Political Uncertainty: Insurance is a highly regulated industry, and each state in the US follows its own standards: insurance commissioners can be elected by popular vote in some states, while in others they are appointed by the governor. The election season creates a lot of uncertainty for airlines.
  • trend change: Macro trends such as the increase in distracted driving are having a significant impact on the insurance industry. Between 2020 and 2021, fatal accidents increased by 10% (the largest percentage increase in history) and private car losses increased by 25%. As a result, hauliers will no doubt exercise more caution when writing auto policies since they are more likely to have to pay for accidents. There will also be pressure to increase rates to offset higher claims costs.

What does a hardening market mean for providers?

In a market characterized by risk and uncertainty, carriers are becoming more conservative when it comes to coverage. Insurers want to keep their claims ratios low. As a result, many limit the areas they write in and the risks they cover. Some may even refrain from renewing policies with existing customers. This inevitably leads to a larger number of uninsured or underinsured people.

There is also a tendency to focus less on growth and more on retaining profitable customers, but in a hardened market, competition for the ideal customer profile is fierce. Therefore, vendors need to be creative in their retention efforts to prevent their customers from leaving and buying from another company. Additionally, it’s harder to get appointments as shippers are cautious about the risks they take, meaning agencies and brokers can’t easily expand their business books.

What can insurance providers do to help their business and more importantly their customers?

In a hardening market, it’s more important than ever for insurers to find a path to profitability. This requires a little creative thinking. Here are three tips for navigating today’s climate:

  1. Offer selection: You may not be able to serve your customers directly, but give them the ability to still find coverage where they can. You can still add value to your relationships and sell to them in the future.
  2. Offer digital solutions: We are right in the middle of a convenience revolution. Customers want accessible, digital experiences, whether they’re buying car insurance or a new pair of boots. Digital solutions help you meet sought-after customers where they are and offer new products and services you wouldn’t get otherwise.
  3. Expand your partnerships: Agencies struggling to secure carrier appointments should consider partnering with those they already have to succeed together. In addition, carriers can work with neighboring companies that share their customer profile and complement their offerings. You can use APIs to penetrate a partner’s experience through embedded offers and reach new customer segments.

Easier said than done, but try not to lose your sleep given our current climate. The insurance market is cyclical, which means it will eventually return to sunnier skies. Regardless of the economic circumstances, it is important to be prepared for good times and bad. Investing in the right technology and partnerships will help you overcome any obstacles that lie ahead.

For more creative solutions to tap into underinsured markets, check out this Bridging the Coverage Gap report.

Jean-Marie Lovett is President of Bindable, a provider of insurance distribution software. To reach this contributor, send an email to [email protected].

All opinions expressed here are those of the author.

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