How to Navigate the Coming Market Change


When the insurance market is either hard or soft, life for a risk manager is simpler. Transitional markets, like the one we are entering, are tricky to navigate. Developing a renewal strategy takes a lot more thought and planning than during times when pricing is more definitive. Here are five things to focus on for your upcoming renewals.

Start Early

In transitional markets insurers frequently look to make time their ally in the renewal process. When offering an increase or change in terms that is either larger or different than expected, insurers benefit when insureds lack alternatives after they encounter the sticker shock. It is critical that the renewal process begins early, comprehensive information is provided, and deadlines are clearly articulated and enforced. Your broker is integral to this process and its ability to manage the marketing process and not let it get away from them is what separates good brokers from bad ones.

Develop a View on the Market

Having a good read on what the market is up to is critical to executing an effective strategy. Unfortunately, markets in transition can be unpredictable so making an accurate assessment can be problematic.

Fortunately, there is always plenty of empirical and anecdotal experience to draw on from brokers, insurers, other risk managers and trade groups like RIMS and CIAB. Your assessment of the market should be as specific as possible since markets in transition tend to display varied behavior in various sub-segments. Building the right strategy is all about having the right read on the market.

Understand Your Experiences and Exposures

In hard and soft markets your organization’s unique risk story is less important than when the market is in transition. In those markets you are riding the wave of either falling prices and strong competition or rising rates and no options. In transition you need to tell your story more effectively than the next guy. Markets are looking to begin to move rates but will still want to accommodate good business so you want to be the “prettiest girl at the dance” so to speak.

There are two things you must remember to differentiate your company. First, know your losses and trends. If you have difficult claims or poor experience, make sure you can explain why it occurred, what you have done to fix it and why it won’t happen again. The carrier will have analyzed your experience so you want to provide the color that the loss runs cannot.

Second, know your exposures. If you have exposures to Tier I or Tier II windstorm, make sure you know how the RMS 11 model update affects your risk and be prepared to deploy alternate strategies in order to mitigate what will certainly be changes in prices, terms and capacity on those exposures.

In general it is important to set yourself apart and be able to discuss all of your exposures and position yourself in the best light. While that is always a risk manager’s job, it takes on heightened importance at this point in the cycle.

Go To Market

Whether your specific market is hard (cat property) or in transition, it is critically important that you investigate alternatives. You may have a great relationship with risk transfer providers that have treated you fairly and visa-versa, but at the end of the day their goal is to maximize the profit they make off of your account. They will look to balance long-term profitability against short-term price increases, but when a market is hard, or potentially hardening, budgets are increased and short-term interests can override longer-term perspectives. Make sure you know what your options are.

In addition, transitional markets are often characterized by some aggressive players who have “missed the memo” and are looking to gain market share while others are looking to improve the bottom line. So you want to be out to these markets to fully understand what is available.

You do not want to trade a long-term relationship for a one-year fire sale. But at the same time, good quality carriers can have very different views on the state of the market, particularly during transition, whether that is because of perspective, business mix, past experience or other variables. There is no reason to not move your business to a market more bullish on a line of business than your carrier, as long as you feel they are good new partners.

Prepare to Assume More Risk

In the soft market the goal is to take advantage of the arbitrage opportunities that exist between the cost of retaining risk and what insurers are willing to charge you for that same risk. As the market transitions, some of these opportunities will swing the other way.

You should be prepared to structure your program differently to take advantage of niche players. You should also look to increase deductibles, live with lower limits and take more risk on your programs.

Christopher M. Treanor

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About the Author

Christopher M. Treanor is the president of Preferred Concepts, LLC, a specialty insurance broker and program administrator.


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