How Agents Can Help Clients with the State of the Insurance Market

One of Oak & Associates’ key clients in Oregon, Blake Schellenberg of RPIS wrote a newsletter to their clients outlining all of the rate increases they were seeing by line of business. RPIS’ management sent it to all of their clients and prospects without their producers knowing. Their phone just starting ringing with questions from clients that felt they needed further assistance. Below is a summary of the report.

State of the Industry Report

Commercial insurance rates are going up. According to MarketScout’s Market Barometer, property/casualty rates increased an average of 5.9% in the second quarter of 2021. This is a more moderate increase than what was seen in the first quarter. However, rate increases are impacting a wide range of industries, although some sectors are being harder hit than others. The habitational industry saw rate increases of 8.6%, for example, while the transportation industry saw increases of 11%.

Agents need to help their clients that have a renewal coming up to brace for these widespread rate increases and stricter coverage terms with more exclusions. Client should be advised to be ready to face a more challenging underwriting process. Underwriters want to see evidence of strong risk management practices. If your clients can’t provide this, they may be denied coverage instead of being offered coverage with a rate increase.

Preparation is key. Review your client’s claims history with them and risk management practices to see where and if improvement is possible. It will also be helpful to know about the current trends impacting coverage.

Emerging Liability Risks

In recent years, the insurance market has been impacted by several emerging and evolving risks. Five key trends stand out: COVID-19; natural disasters; nuclear verdicts; cyberattacks; and increased awareness of issues involving discrimination and harassment.

COVID-19

The COVID-19 pandemic was the defining factor in 2020, and it continues to play a major role in 2021, largely due to the spread of the Delta variant.

Many states issued orders that prohibited gatherings and forced nonessential businesses to close or switch to remote work. Some cities issued orders of their own. Companies had to comply with these orders while also trying to stay in business, keep their customers and workers safe, and avoid lawsuits. Not all of them succeeded.

According to SHRM, wrongful death lawsuits related to COVID-19 have been brought against JBS USA, a meat processing company, and Walmart. Other COVID-related claims could include wage and hour and layoff-notice violations, as well as workers’ compensation claims. As Reuters reports, they are also seeing legal challenges to vaccine mandates.

There is also concern you should advise your insurance clients that lawsuits may occur if an employee gets infected at work and then infects family members.

According to Reuters, at least one lawsuit has already occurred, and numbers from Praedicat indicate that 7% to 9% of the U.S. COVID-19 deaths are believed to be take-home infections.

Increased Awareness of Discrimination and Harassment

In recent years, we’ve seen social movements seeking to address issues of discrimination and harassment. The #MeToo movement has focused on sexual harassment, while Black Lives Matter has focused on racial discrimination and police brutality.

These movements can place business practices under scrutiny. For example, according to the EEOC, lawsuits alleging sexual harassment claims increased 50% in 2018 in the wake of the #MeToo movement. We’ve also seen new laws and compliance issues, such as the legislation that requires boards in California to include women and members from underrepresented communities.

Protests related to social movements can also lead to business interruption and property damage. The Armed Conflict Location & Event Data Project (ACLED) says that there were more than 11,000 demonstrations associated with the Black Lives Movement. Most of these were peaceful, but approximately 6% involved violence, vandalism, looting, clashes with police, or other destructive activity.

Cyberattacks

The switch to remote work created new cybersecurity gaps that hackers have been eager to exploit. For example, the FBI has warned that network access and an ability to escalate network privilege have not always been fully monitored during social distancing orders, and that cyber criminals have been targeting these weaknesses.

This may explain why ransomware attacks surged in 2020. According to Security, ransomware attacks increased 62% worldwide and 158% in North America. Recent attacks have been targeted and sophisticated, and ransom demands have been getting larger.

Ransomware attacks are bad enough, but companies also have to deal with other cyber threats, including phishing and business email compromise. The FBI’s 2020 Internet Crime Report shows a massive spike in complaints of online crimes. In 2020, there were 791,790 complaints and $4.2 billion in losses. In 2019, there were 467,361 complaints and $3.5 billion in losses.

Natural Disasters

Natural disasters and severe weather are on the rise. According to NOAA, the U.S. experienced a record-breaking number of 22 separate weather and climate events with losses of at least $1 billion each in 2020. The number of named tropical storms that formed in the Atlantic also broke a record.

Natural disasters weren’t just a problem for the U.S. Based on data from Munich Re, the Insurance Information Institute says that global natural catastrophes resulted in losses of $210 billion in 2020, up from $166 billion in 2019.

Summary

Following are also the key takeaways for all insurance agents and their clients to be prepared for, for what lies ahead in the insurance marketplace of 2021.

1. Start preparing for insurance renewals well in advance. Brokers tell your clients that you as their agent need more time to shop the market, advocate on your behalf and secure the best options for you.

2. Budget for rate increases. Remind your clients they don’t want to be caught unprepared.

3. Shore up risk management practices in all areas. Agents, you may have to prove that your client is a good risk in order to get coverage. Put all policies, procedures, training and documentation in order. This helps you, the agent, to tell your client’s story and make a strong case to underwriters.

Also, remind your clients to revisit their business continuity plan to be sure they can minimize business interruption if their operation is affected by a natural disaster or other unexpected circumstances, such as wildfires, hurricanes, tornadoes, etc.

4. Pay attention to open claims and reserves. You, as the client’s agent, need to accelerate claim closure and to mitigate the cost of any open claims using proactive strategies like early-return-to-work.

5. Check for coverage adequacy. Be sure the client’s limits are high enough to withstand a nuclear verdict. Cyber coverage should be checked to ensure that incidents caused by remote workers and devices are covered. Agents can help review key exposures for each client.