While many were predicting the onset of a hard market, it doesn’t look like it will arrive in 2012 or that we are necessarily due for a super hard landing in 2013. However, the first signs of a hardening market are here – reinsurance rates are increasing and property lines are being rerated in many areas. However, we haven’t seen diminishing capacity across the market, what we are seeing is targeted rate increases, tending to follow lines of business and loss experience. What it means is if you have a poor loss history in areas where risk is being rerated (like property) you are likely to think you are in a hard market!
What this provides is some breathing space between current market conditions and a true hard market. Assuming we follow the insurance cycle, we will get a hard market eventually. The question is when. Assuming we will see further hardening in 2013, as is the best guess of reinsurance and insurance experts, it will pay to be prepared.
There are younger insurance professionals out there who have never been through a hard market. So it is worth thinking about what a hard market means for claims. First, some history…the hard market is visited first upon those with poor loss experience. They are rerated and often asked to take higher self insured retentions. They are also invariably directed to increase their risk management and to have claims professionally managed. As the overall market hardens, this phenomenon creeps across industries and becomes less selective, so all are impacted by rising rates and increased focus on risk selection – so your loss experience, claim management and risk management strategies come sharply into focus. Those with better track records are dealt with less harshly. Those with poor loss experience can find it difficult to get insurance – these were the companies that in the last hard market drifted offshore to foreign insurers. Given DOFIS are now outlawed, what will be the market of last resort if conditions deteriorate?
There is no doubt the soft market creates bad habits – a lack of focus on risk and claim management being common examples. Insurers and companies alike, when confronted with rising costs and stiff premium penalties often do the complete opposite of what they ought to do. For liability claims this may mean a sudden change in philosophy to one where you fight more claims. With all due respect to lawyers, I am yet to hear of a philosophy of using lawyers and fighting more claims than doesn’t end up costing you more money. However it is often the low hanging fruit that provides the stimulus for a new strategy. In property claims it may be investigating more claims with a view to increased scrutiny, but again this will only encourage disputes which will escalate rather than ameliorate costs.
The reality for improving your risk profile is far removed from the quick and easy wins. Changing your risk and claims strategy is a challenge, but if you want to create a legacy of change, where you will avoid being at the forefront of a hard market, there are no short cuts. So what is our check list for the first hard market you will encounter?
Be prepared to have skin in the game – increasing your own self insured risk not only sends the right message to an insurer, it also positions you better to trade your own self insured claims against premium increases.
- Focus on risk management – look at your claim experience and focus on 3 issues where you can improve your risk profile.
- Claim management process – have you got the right process in place? Do you get all notifications quickly and are they triaged and managed effectively? Two sure signs of a) failing claim process are – a. You can’t identify with any precision your past losses and b) You pause when confronted with what is the next step in the claim process. If the next step is automatically going to a lawyer, you may need a better process.
- Best practice claim management – retain a Claim Management specialist for your self insured claims and hold them accountable for service standards and results.
If you have these procedures in place before the hard market bites you will be in a better position to obtain insurance on best possible terms for you.