2012 Equity Risk Partners Year in Review: See! We Told You So!
We are pleased to welcome you to our latest edition of the Partners’ Perspective entitled See! We Told You So!
When we last met our intrepid hero – A.K.A. the guy that writes those hilarious and insightful State of the Market commentaries – he was trying to educate the clients and prospects of Equity Risk Partners about the coming hard insurance market. Well, as I… um, I mean “he”… as he always says, “It is no fun always being right. But, it sure beats always being wrong!”
Over the past few months, as the 2012 renewals have rolled in, we have seen continued deterioration in pricing, despite the poor global economy. Usually, weakening global economic results would have a moderating impact on the firming of rates. That does not appear to be the case. As we discussed in our 2012 State of the Market report, we believe that the rate increases will continue a steady climb through the next renewal cycle.
We have seen firming of market pricing across all lines of coverage. No geographic area has been spared. No industry segment has been missed. In keeping with this election year, this will be a very democratic hard market.
Insurance Information Institute president and economist Robert Hartwig, outlines four main criteria for a “traditional” hard market.
As Ray Kinsella’s wife in Field of Dreams said as Ray rattled on about some unrelated issue, “Big whoop! What does it have to do with baseball?” You might ask “What does this mean for my renewal?” It means – go have a catch with your dad and your renewal will seem a lot less imposing.
Seriously, we believe that the factors listed above point us toward a non-traditional hard market. While surplus remains strong, the alignment of the other negative outcomes leads us to an expectation of a sustained hard market composed of continued strict underwriting discipline and ongoing moderate (5 - 10 percent) rate increases.
Underwriting discipline will impact insureds in two main ways. First, higher rate increases will befall those I deemed to be poor risks based on factors such as negative loss history, inconsistent safety management or difficult industry segments. Second, all insureds will deal with more strict policy forms. The “laundry list” of coverage enhancements that insureds have taken for granted over the past six to eight years will be replaced with more negotiating of terms and conditions. Having a broker that understands your industry will be paramount. Maintaining longer term relationships with insurers in order to “build a policy form” over multiple renewal cycles will be advisable.
We recently attended the Goldman Sachs Annual Insurance Symposium. The CEOs of the leading U.S. and global insurers echoed our sentiments.
Receiving “tight” terms and conditions and a higher rate at renewal while trying to manage your business in a difficult economy can be frustrating. We know – our terms and conditions and our rates for our own corporate coverages are undergoing the same transition. Not fun. Knowing that you were the beneficiary of several years of fierce price competition is of little consolation now.
Now, more than ever, it is important to start your renewal early. You can do your part by making sure you respond to the updated information request as quickly as possible. It is also important not to panic or to overreact. It is likely that the aggregate premium increases you will receive over the next couple of years will not exceed the aggregate rate decreases of the prior soft market. So, in the end, it is likely that you will still be ahead.
We will continue to update you on this very unique and fluid market cycle. Please do not hesitate to contact your Equity Risk Partners professional with any questions or concerns. While we do not enjoy seeing our clients get rate increases, we are always glad to provide them with value and guidance in a difficult environment.
As always, we appreciate the opportunity to be of service and thank you for your continued support of Equity Risk Partners