Is rate relief for mid-market businesses on the way? |Insurance Business American Insurance News Is rate reductions on the way for middle-market businesses?
Rate hikes are trending flat in some sectors, but it's not that simple
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Written by Zia Snape
Navigating the world of commercial insurance can be a daunting challenge for mid-market companies. Some insurance products are in a “consolidated” market cycle, while others are more stable.
Brokerage group Hub International reported that commercial insurance rates for middle-market businesses rose an average of 6.9% in the third quarter of this year, and expects rates to remain flat or moderate through the end of the year.
However, he noted that there is significant variation in rates in certain areas such as commercial auto, general liability, real estate, excess/umbrella, workers' compensation, D&O, and for customers with more complex risks.
Michael Chapman (pictured right), National Director of Commercial Markets and President of the Hub's Southern and Central Regions, discusses the key factors driving these changes and the strategies businesses can use to manage them. told Insurance Business.
“The idea of using averages is difficult given the wide range of business sectors studied,” Chapman said. “If rates are flat or rising slightly, that could mean they were rising even more significantly in previous research. Only a few banks have fallen, and even those declines have tapered off. We're still seeing an increase, but the speed and range are significantly lower.
“Previously, real estate, auto, general liability, and excess casualty numbers were in the double digits. Now, the market is correcting, in part due to improved record company performance and profits.”
Which insurance products remain volatile from an interest rate perspective?
Chapman said the areas of greatest concern are general liability and commercial auto insurance. Interest rates on these routes continue to rise at a high rate, mainly due to external factors. For general liability, the main driver is increased litigation.
“In terms of general liability, we have returned to fully open courts and the litigation environment has returned to pre-2020 levels,” he said. “The world is very litigious right now, and the size and scope of judgments is driving the increase.”
The rise in high-cost judgments is forcing insurers to limit their ability to respond, shifting more risk into overcrowded markets. “Instead of offering a $100 million limit on excess umbrellas, (airlines) might offer $10 million and price accordingly,” Chapman said.
Commercial auto insurance faces a variety of challenges. Contrary to expectations, technological advances have not led to fewer accidents. Distracted driving with cell phones and an increase in delivery vehicles (what Chapman calls the “Amazon effect”) are exacerbating the problem.
Insurance claims are also becoming more expensive as more complex parts are required. “We had a little bumper issue that would have cost us $150 20 years ago, and now it's $4,000 because of all the technology that's in the car,” Chapman said.
Risk and claims management are key to favorable renewals
Some items, such as general liability and auto, continue to rise, while others remain stable or even decline. For example, workers' compensation is highly regulated and rate changes in this area are minimal.
Similarly, the directors and officers (D&O) insurance market for publicly traded companies, which has seen significant growth in recent years, has remained flat.
“The D&O market for listed companies rose steadily until around 2022, but then the market plummeted from the end of 2022 to 2023,” Chapman said. After this sharp adjustment, interest rates are now flat, he said.
As rates fluctuate across different sectors, mid-market companies are at a crossroads and must adapt their strategies to cope with rising costs. Mr. Chapman emphasized the importance of risk management and active claims management to help businesses obtain more favorable insurance renewals.
Companies that can demonstrate that they are low-risk customers are in a better position to secure better rates. Companies that proactively address risk and demonstrate a willingness to adjust deductibles and limits are more likely to achieve better outcomes.
“I think the biggest question for brokers is: Where do we bring value beyond just delivering business?” Chapman said, “That’s why we create these interest rate outlook reports and stay informed about market trends. So we can go to our customers and ask them how they can be a non-average risk.”
The key to becoming a low-risk customer lies in three main strategies: promoting a culture focused on risk management, managing claims effectively, and having flexible compensation structures.
“How motivated is[the client]to promote a culture[within the organization]that focuses on risk management?” Chapman said.
What should mid-market customers know ahead of renewal season?
Supply chain risk is another area that companies need to focus on. Business interruption claims have increased as the time it takes to procure replacement parts and machinery has increased significantly. Companies need to be aware of these risks and take steps to diversify their supply chains and no longer rely on a single supplier for critical components.
In addition to these internal strategies, mid-market customers also need to be aware of broader market factors that influence premium rates. Chapman pointed to the volatility of the reinsurance market, noting that insurers are becoming more selective about the risks they underwrite.
“We don't expect there to be any significant limits on single property risk or large fleet coverage,” Chapman said. “Currently, insurance underwriting has become very strict, requiring companies to provide insurance to their customers with robust risk management in place.”
Are you a broker serving the middle market space? What do you think about this outlook? Please share your comments below.
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