Tag Archives: Advisen

Advisen Event Panelists Proclaim Hard Market
in Property Insurance

 

In a hard market, demand for coverage is strong, supply weak. Insurers impose strict underwriting standards, and buyers pay higher premiums.

For those still tiptoeing around whether the property insurance market is yet officially “hard,” two speakers at Advisen’s Property Insights Conference last week unabashedly used the “H-word,” and none of the 300-plus insurance and risk-management professionals attending seemed to disagree.

Gary Marchitello, head of property broking for Willis Towers Watson, was first to say it in an on-stage conversation with Michael Andler, executive vice president/U.S. property practice leader at Lockton Cos.

Andler concurred: “If it walks like a hard market and talks like a hard market, it’s a hard market.”

Some presenters during the daylong event quibbled over when pricing went from merely “hardening” to “hard”.  Some said the hard market is eight quarters old, while others said it began as recently as the second quarter of 2019 – but no one piped up to deny it’s here.

Hard, soft, and why it matters

In a hard market, demand for coverage is strong, supply weak. Insurers impose strict underwriting standards and issue fewer policies. Consequently, buyers pay higher premiums. During soft markets, customers can negotiate lower prices as insurers compete for business. When the market hardens again, prices rise as insurers adjust rates at renewal.

Marchitello, with four decades’ experience, said this hard market is different: “With prices rising, you’d expect new entrants to the market. That is absolutely not happening.”

“It’s going to get worse before it gets better,” he added. “Two years of combined ratios above 100 have forced underwriters to drive profitability” rather than pursue market share, as many did during the soft market.

 We brought it on ourselves

In a room packed with insurers, brokers, and buyers, one might expect some finger pointing for the dramatic price increases. I heard little to none.

“We as underwriters allowed it to happen,” said Erik Nikodem, senior vice president at Everest Insurance.

“We lost the script during the soft market,” said Michal Nardiello, senior vice president at CNA. “We pushed deals that weren’t sustainable in the long haul.”

And it wasn’t only underwriters accepting responsibility.

“I never turned down a lower rate” when the market was soft, said Lori Seidenberg, global director of real assets insurance for BlackRock. Not that she should have – but professional risk managers know a soft market isn’t going to last forever and need to plan accordingly.

Despite this admirable accountability, it’s important to remember larger forces have been at work. As CNA’s Nardiello put it: “There’s been a massive shift of wealth and people into areas prone to fire, tornados, hail, and flood” – perils that are themselves changing in frequency and intensity.

Also a factor is “social inflation” – rising litigation costs that drive up insurers’ claim payouts, loss ratios, and, ultimately, policyholder premiums. It’s been estimated that social inflation “could ultimately blow a $200 billion hole in global reserves.”

 What’s next?

 Carriers, customers, and brokers all acknowledged the need to do things differently. While much was said about using technology, data, and analytics to improve underwriting and reduce expenses, the dominant theme was communication. All parties recognized they must communicate early and often.

As Duncan Ellis, head of retail property, North America for AIG, put it: “Bad news doesn’t get better with time.”

“It’s important for brokers to get a handle on the data,” said Theresa Purcell, director of risk management for real estate giant Kushner. She also recommended that brokers “get creative. Suggest different structures. Educate us about other services” that might better suit individual customer needs.

Stephanie Hyde, executive director at P-E Risk, an insurance and risk management consultancy, echoed Purcell, adding that brokers need to “educate yourselves about all lines of coverage your clients need so you can understand what they’re going through.”

Maria Grace, vice president and chief underwriting officer for property and inland marine at Everest, urged brokers to “put us [underwriters] in front of your clients” to help them understand why prices are increasing and, where possible, offer more appropriate solutions.

 

Small business and cyber insurance

Risk management services are an important way cyber insurance adds value for small businesses, according to a new I.I.I. paper.

In Protecting Against #Cyberfail: Small Business and Cyber Insurance, I.I.I. co-authors James Lynch and Claire Wilkinson say:

“The provision of these types of services is considered a growth area in the cyber market for SMBs, where price may be a barrier to insurance coverage in the first place. For larger companies, cyber-related risk management services may be offered at a discount or for free.

“For SMBs in particular, offering a risk management or training solution where they can learn more and keep themselves up-to-date on current threats is perhaps most valuable.”

Also heard at the Advisen Cyber Risk Insights Conference in NYC last week: part of the value proposition for SMBs is that cyber policies offer solutions, not just coverage.

Andy Lea, vice president underwriting for E&O, Cyber and Media, CNA, told the conference: “The value proposition is more prominent with SME and middle market companies that just don’t have resources available in-house to manage risks. This is an opportunity for brokers and carriers to add value.”

Cyber Insurance Becomes ‘Must Have’ Product

The percentage of companies buying cyber liability insurance is increasing substantially, according to an annual survey jointly produced by Advisen and Zurich.

For the first time in the three years that the survey has been administered, more than half of respondents claim to purchase cyber liability insurance.

In response to the question “Does your organization purchase cyber liability insurance?† some 52 percent responded yes, compared to 44 percent in 2012, and 35 percent in 2011.

Only 38 percent said their organization did not purchase this protection, down from 50 percent in 2012 and 60 percent in 2011.

Of those companies that do purchase coverage, some 72 percent have done so for more than three years. This represents a 10-point increase from 2012 suggesting that when organizations purchase the coverage they see enough value to renew it year after year.

Even those companies that have not bought cyber coverage are thinking about it.

Half (53 percent) of survey respondents that do not currently buy cyber insurance are considering purchasing it in the next year – a 28 percentage point increase from 2012.

Advisen notes:

This is an indication of the continued shift in the cyber insurance marketplace, from a product that was interesting but not a necessity to one that is becoming a must have.†

Check out a recent I.I.I. paper on cyber risks.