6 Steps to Take Before the Soft Market Hardens

Most insurance professionals detest a soft market because of the increase in competition, unreasonably low pricing and increased market vulnerability. Some, however, may appreciate a softening precisely because of the change in underwriting and pricing philosophies.

No soft market lasts forever. The hard market will arrive. Like the “real estate bubble,” carriers cannot sustain underwriting and investment losses. What does this mean to retail agents and brokers?

Agencies with a majority of their book placed with preferred carriers may spend additional, unanticipated time trying to re-market those accounts because of the crises faced by those carriers. Carriers know that if they entertain risks as they have during the soft market, it could lead to insolvency.

When the market does turn, the burden once again will be on agents to adapt to the new market condition — to which some may not be accustomed or even ever experienced.

Underwriting complacency and pricing latitude will disappear in the next hard market, as in all hard markets. Clients accustomed to the current market conditions are going to complain, asking why their renewal offers are so much higher, or why the incumbent carrier is not renewing the policy despite a clean claims history. Being able to satisfactorily answer these questions and successfully retain clients will soon be the goal of every agent.

Avoid Being Left Behind

How does an agent avoid being left behind when the shift happens?

Be prepared for the reality of the coming marketplace.

1. Just as a grocery store operator regularly checks, agents should do the same to ensure the current markets are not significantly changing guidelines or increasing rates. If they are, that could mean they are planning to cut a few agencies as soon as they feel their executives can no longer spend $1.2 million to renovate their offices. If the agent has other preferred carriers, approach them before the market changes. Don’t wait until the last minute.
2. Gather individual loss runs and agency loss data quickly. This is important because if/when markets become insolvent, it is very difficult, if not impossible, to obtain loss runs or analytical reports. Don’t assume that insurance departments, guarantee associations or other governmental agencies can or will assist in securing the data. Because the agent is not the “consumer,” these entities will most likely disregard such requests. Remember, the governmental agencies work for consumers, not industry-related entities.
3. Renew and/or rebuild relationships with excess and surplus lines markets. The key role of surplus lines brokers, wholesalers or managing general agents is to make markets available to retail agents who lack the necessary “preferred” markets or need a market to entertain risks that are normally declined by preferred carriers.
4. Don’t be afraid to ask questions or reach out to past or current contacts. Many insurance practitioners rely on knowledge gained from on-the-job experience, self-education or acquaintances, rather than company training programs. Unlike standard carrier underwriters, many E&S underwriters have knowledge and direct experience at both the carrier and retail levels. Not only can MGA underwriters advise on current market conditions, they can also help agents by obtaining rates and coverages not normally available (subject to state law).
5. Automate the agency. Recent statistics indicate that more people buy insurance via the Internet or other means of electronic communication. While having paper files may be practical, agencies needs to be able to communicate with customers more efficiently through technology.
6. Participate and invest in industry gatherings such as seminars and conventions. Agents who are well-informed understand the deeper aspects of the industry and the market.

Remember that the industry will be facing greater challenges in the near future. Preparation is your best option.

Topics Carriers Agencies Pricing Trends Underwriting Market