Insurance Buyers’ Choice: Bigger Premium or Bigger Risk

By | January 6, 2012

Property/casualty insurers may be poised to raise their prices but buyers may not be in a position to pay more, advises a veteran of insurance cycles.

“It’s not an issue of willingness. It’s an issue of capability,” says Jerry Sullivan, chairman, The Sullivan Group in Los Angeles. “Because of all the economic issues going on, we know full well there are many consumers out there that can’t pay much, if anything, more.”

In an interview with Insurance Journal at the recent WIAA Insurance Industry Roundtable sponsored by the WIAA Education & Research Foundation, Sullivan agreed with others the soft market is beginning to harden in some areas.

“It’s not dramatic yet. It’s probably not going to get dramatic for some time yet, but the market change has begun and we are moving into tighter markets, or at least changing markets than we’ve had,” he told Insurance Journal.

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

“What one has to do is to look at their insurance program. They may have to increase deductibles, they may have to reduce limits. There may be some peripheral coverages which are really not that critical, that they could either reduce or eliminate.

“Therefore, the 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 said.

Sullivan believes some insurers will follow this rate-per-exposure strategy over the next several years.

Brokers have an important role to play as the market transitions from the prolonged soft market, according to the California executive.

“One, they need to go to the insured, make sure the insured knows what’s happening, why this is occurring, what’s happening to the risk takers. 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 said.

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 said.

The Rancho Cordova, Calif.-based WIAA Education & Research Foundation plans to hold a similar roundtable each year.

To view the complete interview with Sullivan and his views on the role of brokers in the changing market, visit here on IJTV.

For additional coverage by Insurance Journal, watch:

How Insurance Distribution is Changing

Agency Exchanges: Big Brother for Small Agent

More to come.

For the complete report on the WIAA Insurance Industry Roundtable, visit WIAA here.

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