The global insurance market continues navigate evolving uncertainties and recover from the economic challenges that have compounded an already hardened market and led to insurance pricing increases in most business and geographies over the last several years. As organizations turn their attention to their upcoming insurance renewals, this has translated into a rude awakening with some receiving letters of non-renewal and others receiving new and unfavorable terms and conditions for coverage.
A number of macro trends in the global insurance market have the potential to complicate the sourcing and placing of insurance solutions to help organizations effectively manage their risk profile and total cost of risk:
1. Inflation and Insurance Premiums
Skyrocketing inflation rates have resulted in a downstream impact that has affected nearly all global insurance marketplaces across all geographies. As a result, organizations can expect to see high single-digit and double-digit increases across majority of business lines across all industries, which will have a palpable impact on their ability to manage their total cost of risk and bottom line.
2. Property Values and Coverage
With an increasing number of losses related to extreme weather events combined with the increasing costs to replace buildings and their contents due to the rising inflation rates, insurance markets have increasingly focused on reported property values, which should reflect the accurate amount to cover the full value of the property and its contents. This will certainly be top-of-mind during upcoming renewals as insurance markets will assess whether the reported values align with their internal estimates for property damage values at risk and are in accordance with the policy’s valuation conditions. Those who cannot demonstrate the adoption of a rigorous approach to determine reliable values stand to face a more challenging insurance renewal, which may result in non-coverage or coverage restrictions.
3. Cyber Requirements and Placement
The increasing number of cyber incidents and claims across all industries and geographies has prompted many organizations to focus their efforts on enhancing their cyber risk posture. This includes the implementation of cyber risk controls and the retention of cyber insurance solutions suitable for their respective risk profile. However, in light of increasing cyber incidents and claims, many insurance markets have become particularly selective of the industries and organizations they will work with. As a result, organizations have received notifications of non-coverage or non-renewals for cyber coverage, while some have been imposed more stringent requirements if they wish to retain their cyber coverage.
Strategies for Effective Insurance Renewals
Amid the challenges in the global insurance marketplace, there are practical steps risk professionals can take to facilitate an efficient and effective insurance renewal for their organization:
1. Strategize with Your Insurance Broker
Because organizations have differing objectives and risks, risk professionals need to leverage their insurance broker as a strategic business partner. Specifically, they should collaborate with their insurance broker to strategize an approach that addresses their unique risk profile, while aligning it with their specific risk and financial appetite. While this should occur throughout the term, this becomes especially important prior to insurance renewals. By working with their insurance brokers, risk professionals can articulate specific objectives and implement the appropriate strategies geared towards achieving outcomes that would stand to provide short and long-term value.
2. Start the Insurance Renewal Earlier
As risk professionals look to gain the most value and work towards a favorable insurance renewal, they should work with their insurance broker to start their renewal earlier. By doing so, it will allow them to engage the appropriate groups (e.g., executive leadership, board) within the organization that will inform their specific objectives and strategies during the insurance renewal. This will also provide an opportunity to engage in a dialogue with the insurance broker and the market so they can gain a better understanding of the organization’s risk profile and initiatives being taken to address its top and emerging risks. Lastly, it will provide the opportunity to review any issues (e.g., excessive premium increases, new coverage requirements) that may pose as a challenge for the renewal and implement the appropriate actions or consider alternative solutions.
3. Involve Executive Leadership and Board
Many organizations are navigating their way through the current economic environment with a renewed focus on managing their total costs of risks and bottom line. As a result, this has prompted the organization’s decision makers—executive leaderships and board of directors—to question the value derived from its insurance program. This presents an opportunity for risk and insurance professional to involve decision-makers so they are able to make informed and value-driven decisions that are in alignment with the overall risk strategy. As part of this, risk professionals should work with decision makers to identify its strategic objectives and prioritize which risks require increased attention, while also keeping them informed by providing updates on the insurance marketplace, notable high-risk claims, focused risk controls, and the collective implications they may have on their insurance renewal and program.
4. Review Claims Diligently and Regularly
Claims management plays a critical role in influencing the course of an insurance renewal, so risk professionals should conduct in-depth and regular reviews of their claims to identify any high-impact and high-reserve claims that could influence insurance renewal pricing. As part of this work, the focus should be on the appropriate management of claims, particularly first notification of loss and timely claims resolution. For those high-impact and high-reserve claims, risk professionals should work with their insurance broker to develop a concise summary that provides the insurance market and underwriters a better understanding of the incident that led to the claim and what actions the organization has taken to prevent a similar reoccurrence in the future.
5. Focus on Risk Prevention and Management
As organizations continue to absorb the challenges that persist in the global insurance marketplace and impact total cost of risk, risk professionals should initiate or continue to engage in dialogue that places an increased focus on risk management activities. In doing so, risk professionals can leverage data and analytics—derived from the organization’s risk profile of current and emerging risk exposures—to identify its top risk areas and inform the implementation of targeted risk controls throughout the organization. As a result, risk professionals will be able to articulate to their insurance market and underwriters the actions being taken to address their risks, but it also will shift their organization towards a more balanced approach to managing risks through a blended combination of risk prevention, mitigation, and transfer controls in the organization.