By: Derick Stitik, SVP Socius Property Practice Leader

Ten, fifteen, or even thirty percent increases are pretty standard in property renewals these days! So, what happened? We hear this daily and it may seem as though the market has firmed up overnight, but it’s actually been happening for about 2 years now. After many years of decreasing prices and increasing “soft” capacity, the significant catastrophe losses have finally caught up to us.

There are many factors for the spike in property pricing these days. After several years of operating at significantly higher loss ratios, the London marketplace had a paradigm shift that was well needed and far reaching with its ripple effect. It is important to note that Lloyds’ capacity is not just used for hard to place risks. Lloyds is also one of the Insurance marketplace leaders that provides capacity to carriers, MGA’s, and program administrators on a global basis. Many of the Domestic markets we use every day, had some type of support from Lloyds: blended capacity, re-insurance, or multiple syndicate fronting. As Lloyds “righted the ship” to obtain profitable portfolio underwriting, side effects of the change has included higher pricing, a retreat from some classes of business, and reduced capacity.

For many years now, increased “soft” capacity from investment firms such as hedge funds and pension managers have been drawn to insurance, thus seeking a steady investment vehicle to counter the volatile stock market. Recently the steady and reliable return on investment has diminished. Soft market pricing, lower deductibles, enhanced coverage forms, and valuation (ITV) issues have driven the price of claims sky high. The culmination of these developments, including actual catastrophes themselves, have left carriers paying out sums that were never anticipated in their actuarial calculations.

Here are a few facts to consider:

• In the U.S. alone, from 1980, to 2019, we averaged six 1Billion-dollar disasters a year*.
• In the last five years we averaged nearly fourteen 1 Billion-dollar disasters a year*. 

This simply means that losses reached at least one billion dollars, and many cases greatly exceeded that mark. The frequency and severity of the disasters are on the rise as well. Hurricanes, floods, wildfires, and earthquakes are all driving much larger losses for carriers, and in turn, the aforementioned investors. Couple this with several years of some very large industrial fire losses, and you can understand why the market is retreating from large limit policies. 

Now insert Covid-19. The novel Corona Virus has certainly had its share of responsibility in some of the more recent placement problems. Vacancy concerns and business income litigation are two of the top What Happened To My Property Quote?? concerns for carriers. While vacancy and business income issues are far reaching, it is safe to say that hospitality risks have been severely impacted in the COVID 19 environment. 

So what can I do? Given that the market has firmed significantly, for the myriad reasons listed above, the shell shock to insureds has spurred a massive remarketing event. Years of “shopping” for reduced pricing has led to Insureds and retailers seeking out options. Carrier underwriters are simply overwhelmed. So again, what can I do? 

Set reasonable expectations: make sure you are delivering a message to the insured well ahead of renewal, or at the outset of prospecting for new business.

1. Set reasonable expectations. The days of “sleeper markets” and stealing away low hanging fruit are greatly diminished.
2. Have a discussion with your broker about the account prior to submitting.
3. Send in complete submissions: completed applications, loss runs, and a statement of values, are critical to get a broker or underwriter engaged.
4. Be patient: many carrier underwriters are under tremendous pressure and may need additional time to get certain accounts approved.
5. It’s the same as number
6. Remember that opportunities are different than accounts; there are placement solutions for both, just be mindful of the difference. 

Please contact your favorite Socius Broker for guidance in these tough times. Many younger producers, and some not so young, have never really experienced a truly hard market, and the most recent hard markets did not last very long. We do not know how long this will go on, but know that a good broker can often help take some of the angst out of the process. 

Until the next Zoom call …. Happy Selling All! 

*The Weather Channel 8/2020