A Guide to Markets in Transition

Strategies for Navigating a Hardening Insurance Marketplace

July 23, 2019

The Marsh & McLennan Agency (MMA) Guide to Markets in Transition provides clients with observations and recommendations that help enable the formation and execution of program design and placement strategies in a transitioning or hardening insurance market environment.

Avoid surprises and get to market early. 

Nearly every business, in some fashion, is faced with financial and risk decisions today that they have not experienced for decades. All indicators point to “markets in transition,” with unfavorable circumstances negatively affecting the availability and pricing of insurance coverage. Rate increases across all lines of coverage is becoming the norm, except for workers’ compensation. For workers’ compensation, some are simply seeing experience modification increases due to a new found understating of Pure Premium Rates (PPR). 

The dividing line between a “market in transition” and a “hard market” is one of perception and metrics. We look at how quickly conditions are changing and by how much. Adverse movements in the availability and cost of risk transfer, and in the scope of coverage that take place over an extended period of time may be characterized as market hardening. While the same changes occurring rapidly may be viewed as the onset or arrival of a hard market.

As we move into a hardening market, securing affordable coverage for certain exposures and classes of businesses can become virtually impossible. Having a skilled broker that can help navigate this type of market atmosphere is paramount. Marsh & McLennan Agency (MMA) excels in finding solutions to the tough challenges a hard market can present. It all starts with early planning and a strong communicative partnership.

Mid-Year 2019 Market Observastions

  • Property markets are experiencing record-breaking CAT losses and “insured to value” shortfalls that lead to lack of capacity, deterioration of terms, and in some cases significant pricing increases (especially for CAT exposed habitational risks). A few industry classes (multifamily, hospitality, mining, and energy) are facing profoundly more difficult market conditions than what is being experienced by the broader marketplace.
  • Automobile losses are still out pacing rates making this line of coverage an unprofitable one for insurers. The trucking market continues to constrict.
  • General Liability and Product Liability markets are experiencing larger loss scenarios as jury awards continue to increase.
  • Workers’ Compensation markets remain aggressive and favorable for most insurance buyers, with significant competition across the marketplace.
  • Cyber protection options are constantly evolving to keep up with the pace of change. However, the cyber coverage take-up rate remains low despite the obvious exposures. 
  • D&O suits are now stemming from cyber security concerns. While private company management liability has become unprofitable for some insurers and some markets will be looking to increase rates and limit capacity, the continued market competition caused by the newer entrants to the market may help counterbalance negative effects.
  • Employment Practices Liability (EPL) insurers note that claims costs continue to rise, which is contributing to the modest upward rate trends companies are experiencing. 
  • Fiduciary ERISA fee litigation remains a growing underwriting concern.
  • Crime insurers are exercising greater discipline, insisting on adequate underwriting information, and charging higher premiums to accept emerging risks related to fraudulent impersonation and social engineering schemes.
  • Carrier Capacity is guarded through predictive modeling that few carriers ignore.
  • Alternative Risk and Captive markets are feeling the same pressures.
  • Pace of Change is unprecedented demanding immediate and nimble responses to the constant competitive disrupters found around every turn. Challenges of an aging workforce, rising healthcare costs, and international trade tariffs (just to name a few) exasperate the circumstances.

Developing a Winning Strategy 

  1. Start the renewal process early, engaging the entire C-Suite.
  2. Build a strong and compelling market submission with MMA’s guidance.
  3. Conduct benchmarking and market research.
  4. Employ risk mitigation measures that improve the overall risk profile.
  5. Have a plan to manage loss control visits.
  6. Don’t rely on past performance and relationships with markets.
  7. Explore use of captives and other alternative risk solutions.
  8. Include the global marketplace in the carrier selection process.
  9. Prepare to make coverage and/or limit reductions.

What to Expect from MMA

Every client can expect a transparent dialog early in the renewal process, and throughout all stages of market negotiations. MMA is here to help you create a winning strategy and to implement that strategy. Reach out to your MMA representative with any questions.