Well, the hard market has arrived in all its glory. Everyone is ecstatic because they will make a lot of money. That’s the good news.
The bad news is your clients are mad at you, the carriers and everyone else remotely associated with the industry. You have more business than you can handle, your staff is overworked and burning out, you can’t find qualified people to hire, your carriers are harder to deal with, your customers are willing to give your competitors a try and may never come back, your income and expenses are fluctuating wildly, making your banker nervous and your business is running at a frantic pace that can’t possibly be maintained for long.
It gets worse.
The really bad news is that commercial accounts with a good loss ratio will form a captive or use some other form of Alternative Risk Transfer method. Those accounts will be gone forever and the accounts left in the industry will have worse loss ratios. That will drive up the rates of the industry as a whole. Carriers will respond by raising premiums and restricting coverage, thus driving more accounts to the alternative market. Businesses don’t like surprises. They want costs they can plan for and predict.
The law firm that represents the Insurance Journal is a classic example. During the last hard market in 1986, they formed a captive to write their malpractice exposure. They hired Marsh to manage the captive and arranged for reinsurance in London. Today that captive is domiciled in Hawaii, and insures more than 25 large law firms. During the soft market, every professional liability writer in the country and some out of the country approached them. They demurred. They felt they were better off with their own captive. They know what their expenses are going to be, they participate in the investment income and they meet every year in Hawaii at the expense of the captive. How many other accounts like this law firm are there in the U.S.? How many more will this hard market create?
On the personal lines side, the politicians will get the scent of voter anger wafting across the political landscape and pounce on it. They will seize the issue and run with it; it’s safe. They will draft legislation to ‘protect’ the voters and they will put pressure on the regulators. The result of the last hard market was Harvey Rosenfield and Proposition 103 in California. Is Harvey ready to mount his trusty steed and charge back into battle with his lance at the ready? Will this hard market be the excuse the Feds need to take control of industry regulation?
Lastly, let’s not forget the offshore scams enabled by the last hard market. The “Pirates of the Caribbean” (with attribution to Dave Anderson) sailed into the warm waters of California and raped and pillaged the industry’s clients. So let’s keep a wary eye on the horizon for them.
The industry needs to enjoy this wild ride while it lasts. Agents need the increased revenue and the carriers need to rebuild their surplus accounts. But there will be a host of problems created by the wake of the hard market and we need to prepare now. The hard market is going to end soon or it’s going to continue for another year.
Either way, it’s bad news.