I think that the Modern Insurance Marketplace makes the “Classic Hard Market” impossible. Insurance carriers will have to find new ways to increase revenue because reduction in coverage / appetite ain’t going to happen. There are enough carriers out there, and there still is a race for the premium. Especially if you are lucky to live in an area that carriers find desirable.
Here are some factors that indicate to me the soft market is gone forever:
1) BOP’s. Agents can present many BOP quotes to an insured. Underwriting guidelines go out the window when agents can quote and bind coverage. Why would an insured think there is a hard market when they can have 10 BOP quotes from multiple agents. Online rating has destroyed the Hard Market Cycle. These things automatically renew, and are quoted/bound by CSS staff at agencies. I have come across many BOPs that are just plain wrong. If an entry level CSS is rating these small policies, and if the entry level Underwriters are binding and renewing these accounts, then there is no real underwriting. If a risk was small, and purchases a BOP, then grows, several years later chances are the BOP was never updated. Why would an insured feel there is a hard market when at any time they could simply buy a new BOP.
2) Certain territories have been identified as higher hazard for storm damage, in those areas companies may be restricting coverage, but in the areas not indentified to have higher property hazards, then the standard carriers are moving in and they are hungry. In the areas that are higher hazard, the insurance companies are too scared to pull out. If they do, then there are a dozen carriers that come in to take their place.
3) All of the articles talk about rate,,, people say the hard market is here because there was a 5% increase on a renewal. That is not a hard market. If it were a 15% increase or more, and if the deductible was also going up, then maybe. I have not seen any company announce a restriction in coverage. In fact the opposite is true, I have seen many companies create new programs and new coverage. How many carriers have just opened a new Special Lines Program, or have just expanded. How many companies are now offering Cyber Liability and other such coverages.
4) In today’s world, with all the media and eyes on our industry, it would be very difficult for our companies to reduce or decline coverage. Could you imagine the media back lash if a number of carriers all decided to pull out of a coverage or a territory. We would be accused of collusion and there would be a media whirlwind against us. Our companies leaders do not have the guts to take the steps needed to bring forth a real hard market.
I fear the insurance industry is in trouble… If we are not able to turn an investment profit due to the economy, and if we are not able to turn an underwriting profit due to the large amount of BOPs,,, then were will the profit come from???
If we are lucky, the market’s rates will harden for 12 months,,, but I fear there is no longer such a thing as a hard market.
I hear what you are saying regarding BOPs but the truth of the matter is, even with the lack of underwriting you mention, many carriers are still making money on that line. IJ has it right that the hardening is not occurring across all lines. Carriers are examining the performance of their book and taking increases on the lines that are hurting them (namely property and workers compensation) and keeping flat or even decreasing the lines that are more profitable (GL and Auto). Small biz (BOPs), for the carriers that do it well, has been a money maker for a long time. While there are some risks that make it past the gatekeepers (edits in the system, an entry level underwriter that is underwriting by exception, etc), the low expense associated with obtaining, retaining, and servicing that business (again, system underwrites it unless it “kicks” and no loss control inspection as seen as too small/expensive) translates into more dollars (than would exist in mid-market) that can be used to pay claims and keep pricing low. I certainly have seen my share of risks that were written on a BOP but have no business being on one from an exposure, pricing, and coverage standpoint; but I think these make up a small portion of the BOP book and are generally seen, though not admitted publicly, as a “cost of doing business” in this manner.
I don’t think the industry is in trouble, but I do think we are going to undergo a significant amount of change in the next decade; more than just pricing changes. We the economy gets on more stable footing, there will be some consolidation. You are correct that there are a lot of options out there right now; maybe a few too many in some areas. There is also a growing talent gap in the industry; particularly with the baby boomers retiring. For these reasons and others, there will be some additional major m&a in the not so distant future.
At the end of the day, this is an industry that doesn’t like to make a profit for too long. If someone is making money in a certain area, line, etc, someone else thinks they can come in and do it cheaper. It all eventually corrects itself in the next cycle.
Several things that are preventing the typical or usual hard market. First and foremost, technology among carriers now allows small regionals and super regionals to compete in multi-state environments, increasing competition like never before. TMost are mutuals, willing to accept 110 and 115 combined ratios with zero underwriting discipline. They put field UW’s into other states with no discipline and high authority, and the cancer spreads. Quote subject to loss runs, and never follow up. We see risks that have 5 year losses of over 100%, our carrier asks for a higer premium, and they are going to market for less than expiring to multiple quotes from competition. The insureds never ask for loss runs. And this leads us to yet another big problem. Unethical agents. We have agents with no ethics, no morals, and no professionalism running rampant through our industry. Why do you think so many states are now requiring ethics as part of CE?? Because we allow these dunderheads to run amok in our industry, quoting with zero discipline.
Ain’t even close to a hard market, except for CAT property. With annual 10% increases for all casualty lines, we’ll have adequate pricing in 2018.
I think that the Modern Insurance Marketplace makes the “Classic Hard Market” impossible. Insurance carriers will have to find new ways to increase revenue because reduction in coverage / appetite ain’t going to happen. There are enough carriers out there, and there still is a race for the premium. Especially if you are lucky to live in an area that carriers find desirable.
Here are some factors that indicate to me the soft market is gone forever:
1) BOP’s. Agents can present many BOP quotes to an insured. Underwriting guidelines go out the window when agents can quote and bind coverage. Why would an insured think there is a hard market when they can have 10 BOP quotes from multiple agents. Online rating has destroyed the Hard Market Cycle. These things automatically renew, and are quoted/bound by CSS staff at agencies. I have come across many BOPs that are just plain wrong. If an entry level CSS is rating these small policies, and if the entry level Underwriters are binding and renewing these accounts, then there is no real underwriting. If a risk was small, and purchases a BOP, then grows, several years later chances are the BOP was never updated. Why would an insured feel there is a hard market when at any time they could simply buy a new BOP.
2) Certain territories have been identified as higher hazard for storm damage, in those areas companies may be restricting coverage, but in the areas not indentified to have higher property hazards, then the standard carriers are moving in and they are hungry. In the areas that are higher hazard, the insurance companies are too scared to pull out. If they do, then there are a dozen carriers that come in to take their place.
3) All of the articles talk about rate,,, people say the hard market is here because there was a 5% increase on a renewal. That is not a hard market. If it were a 15% increase or more, and if the deductible was also going up, then maybe. I have not seen any company announce a restriction in coverage. In fact the opposite is true, I have seen many companies create new programs and new coverage. How many carriers have just opened a new Special Lines Program, or have just expanded. How many companies are now offering Cyber Liability and other such coverages.
4) In today’s world, with all the media and eyes on our industry, it would be very difficult for our companies to reduce or decline coverage. Could you imagine the media back lash if a number of carriers all decided to pull out of a coverage or a territory. We would be accused of collusion and there would be a media whirlwind against us. Our companies leaders do not have the guts to take the steps needed to bring forth a real hard market.
I fear the insurance industry is in trouble… If we are not able to turn an investment profit due to the economy, and if we are not able to turn an underwriting profit due to the large amount of BOPs,,, then were will the profit come from???
If we are lucky, the market’s rates will harden for 12 months,,, but I fear there is no longer such a thing as a hard market.
I hear what you are saying regarding BOPs but the truth of the matter is, even with the lack of underwriting you mention, many carriers are still making money on that line. IJ has it right that the hardening is not occurring across all lines. Carriers are examining the performance of their book and taking increases on the lines that are hurting them (namely property and workers compensation) and keeping flat or even decreasing the lines that are more profitable (GL and Auto). Small biz (BOPs), for the carriers that do it well, has been a money maker for a long time. While there are some risks that make it past the gatekeepers (edits in the system, an entry level underwriter that is underwriting by exception, etc), the low expense associated with obtaining, retaining, and servicing that business (again, system underwrites it unless it “kicks” and no loss control inspection as seen as too small/expensive) translates into more dollars (than would exist in mid-market) that can be used to pay claims and keep pricing low. I certainly have seen my share of risks that were written on a BOP but have no business being on one from an exposure, pricing, and coverage standpoint; but I think these make up a small portion of the BOP book and are generally seen, though not admitted publicly, as a “cost of doing business” in this manner.
I don’t think the industry is in trouble, but I do think we are going to undergo a significant amount of change in the next decade; more than just pricing changes. We the economy gets on more stable footing, there will be some consolidation. You are correct that there are a lot of options out there right now; maybe a few too many in some areas. There is also a growing talent gap in the industry; particularly with the baby boomers retiring. For these reasons and others, there will be some additional major m&a in the not so distant future.
At the end of the day, this is an industry that doesn’t like to make a profit for too long. If someone is making money in a certain area, line, etc, someone else thinks they can come in and do it cheaper. It all eventually corrects itself in the next cycle.
Several things that are preventing the typical or usual hard market. First and foremost, technology among carriers now allows small regionals and super regionals to compete in multi-state environments, increasing competition like never before. TMost are mutuals, willing to accept 110 and 115 combined ratios with zero underwriting discipline. They put field UW’s into other states with no discipline and high authority, and the cancer spreads. Quote subject to loss runs, and never follow up. We see risks that have 5 year losses of over 100%, our carrier asks for a higer premium, and they are going to market for less than expiring to multiple quotes from competition. The insureds never ask for loss runs. And this leads us to yet another big problem. Unethical agents. We have agents with no ethics, no morals, and no professionalism running rampant through our industry. Why do you think so many states are now requiring ethics as part of CE?? Because we allow these dunderheads to run amok in our industry, quoting with zero discipline.
Wow, can you give me a hint as to which carriers are doing this? I certainly don’t want to end up with a carrier like that!