After a soft market that lasted more than 10 years, the commercial insurance market is hardening up, with cost increases of more than 10% expected across almost every line of business in 2021. Our team hasn’t seen this size or breadth of a jump in two-plus decades.
Causes are many
The culprits? There are multiple. The soft market was atypically long, so we were probably overdue for an adjustment. But that’s minor compared to the other forces creating this perfect storm. Among them:
- Huge wildfires in the west
- Hurricanes on the East and Gulf coasts
- The unprecedented pandemic
- Massive payouts due to social inflation
Workers’ comp is the only line that saw a decrease in rates for 2020, but some carriers are already indicating a rate increase in 2021.
Implications are wide-ranging
In addition to cost increases, we’re seeing insurers exit certain markets, like sexual abuse coverage for nonprofits and smaller business income limits for some risks. Many carriers are also moving to reduced limits of umbrella coverage. One thing for certain is that underwriting standards are getting tighter. Companies with a higher exposure of risk may face fewer carrier options going into 2021.
Solutions are few
There’s not a lot you can do to manage these price increases. Here are some ideas for coping.
- Market your coverage. We don’t recommend taking your business to the market every year, but this one is an exception.
- Make room in your budget. It’s wise to plan for an increase of at least 10% in all lines. If you have a high loss ratio, you may even budget for a 25% increase to be safe.
- Minimize your losses. Review your claims over the past five years and ensure they’re closed out. Open reserves make you especially vulnerable to higher pricing.
- Tighten up your safety programs. Are they updated and well documented?
This is the time to make sure your relationship with your broker is current and increase the frequency of your interactions. Opening the lines of communication can help you understand what to expect and get prepared for increases ahead.
We’re here to help you through 2021, and we’re hopeful the market will soften up again in 2022.
By Tanner Smith, CAWC, CLCS, RWCS
Commercial Risk Advisor, The Miller Group