Déjà Vu

If you are an insurance agent or broker counting on the economy to perform considerably better in 2012 than it did in 2011, well, don’t. Economists say that the economy is showing slight improvement, and employment and income could inch upward in 2012, but overall they expect that the economy will remain fragile. Construction won’t pick up until the employment picture improves.

The same might be said for insurance prices. While there is some upward movement in selected lines, most in the industry think 2012 is unlikely to see a dramatic return to a completely hard market.

As Yogi Berra would say, 2012 could be déjà Vu all over again.

Insurers may be poised to raise prices but the fact of the matter is that many customers may not be in a position to pay more unless the economy improves.

“It’s not an issue of willingness. It’s an issue of capability,” says Jerry Sullivan, chairman, The Sullivan Group in Los Angeles.

But while buyers may not be willing to pay higher rates, they may be willing to accept more risk, says Sullivan.

Customers will have to evaluate their insurance programs. They may have to increase deductibles. They may have to reduce limits. They may have to eliminate some extra coverages.

“[T]he insured may not end up paying more premium, but the risk taker, who’s suffered all these problems, is going to be in a position where they can get more rate per exposure. That’s what they need,” Sullivan told Insurance Journal.

If some insurers follow this rate-per-exposure strategy over the next several years, agents and brokers have an important role to play. Helping insurers get more rate, or more rate per exposure, is part of the broker’s job, too.

“Getting more rate per exposure is important and we need to help the insured understand why what’s happening is happening, and then help them understand their insurance program, how they can adjust it in a manner where they get the necessary coverages that they need to run their business because, at the end of the day, that’s what this is all about, but not have to pay more premium, or at least not dramatically more premium. That’s where this is all going to be, ultimately, heading,” Sullivan says.

He urges brokers to start educating customers about what is happening and why. ” Whether the insured likes it or not, they need the risk taker when the losses occur. Unfortunately, they do occur, so they need a healthy risk taker, at least reasonably healthy,” he says.

Topics Agencies