Call it what you will: a firming market, a challenging market, a seller’s market, a hard market – North American organizations are paying more for insurance in the commercial insurance marketplace. The extent to which costs will increase may vary, depending on risk profile, risk management and how an organization is insured. So, what does the term “hard market” mean? During a hard market you can usually expect to see restricted coverage, higher premiums, reduced capacity and tougher underwriting requirements. These insurance market fluctuations are in response to factors such as: a higher cost of claims, softer investment returns, changes in competition and taxation increases. The hard market has been driven partly by high frequency and severity of weather loss events. For example, the top three insured losses globally for 2018 were caused by the Camp Fire in California, Hurricane Michael in Florida and Typhoon Jebi in Japan, pushing catastrophic loss levels up by about 55% in the past six years.i There have been many, many other events in recent years as well.
According to the Insurance Bureau of Canada, insurance payouts from extreme weather events around the world have increased five-fold since the 1980’s.ii Aside from weather-related events, there has also been an increase in large cyber-related losses. On auto lines, developments in technology have increased the costs of fixing vehicles.
The Benefit of Having an Industry-Focused Reciprocal Insurance Exchange
The goal of a commercial insurance company is to create a profit for their investors; the goal of a Reciprocal Insurance Exchange is to deliver insurance solutions to Members, on a long-term, sustainable basis, providing the most stable and broadest coverage terms possible. These objectives are aided by a Reciprocal’s not-for-profit status. The building of a claims reserve can help to smooth rates over the long-term as well.
As described above, the current commercial market is experiencing hardening conditions in all lines. There have been increases as high as 59% for some municipalities in Ontario.iii Although MEARIE has extended modest rate increases for the 2020 policy renewal, the Reciprocal was able to largely shield Members from the greater turbulence being felt in the broader commercial market.
The following illustrates some examples of market increases, as compared to changes to average rates in the MEARIE program for the 2020 policy year:iv
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Commercial Market
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MEARIE Average Rate Increases for 2020
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Property with good loss history
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10% - 20%
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7.5%
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Primary General Liability
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5% - 10%
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3%
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Crime
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5% - 25%
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8%
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Primary automobile liability with fleet lower than 200 and good loss history
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10% - 15%
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5%
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Primary automobile liability with fleets in excess
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15% - 30%
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5% |
Although the Reciprocal has some exposure to the reinsurance market, it is able to weather some turbulence and smooth client rates through other means.
What Makes this Hard Market Different?
There is some debate in the insurance industry as to the origin of this recent hardening market cycle. For example, some suggest the past soft market had endured too long, and the market is overdue for some price and capacity correction. Another opinion is the soft market has been going on for much longer than previously believed. Stephane Cossette, Senior Director of Risk Management with Quebecor Media Inc. observed that, “…after the 9/11 terrorist attacks on the World Trade Centre and the global financial crisis in 2008, it looked like the beginning of a hard market, but it didn’t happen.” In other words, when markets had been expected to harden, the conditions did not fully materialize or if they did, they were simply blips. The difference this time is underwriters are willing to cancel accounts, illustrating the market is truly hardening.v
One element that is changing the insurance market that can potentially make or break a hard market is data. Insurers can easily access data and are able to pivot faster than ever before. This so called “data-driven hard market” features insurers’ ability to pivot faster than previously, whether it is to shift out of business quickly, but also have the potential to assess risk and develop more accurate pricing.
MEARIE strives to provide Members with the most competitive pricing and coverage in the market. Our history began with a hard market and the reciprocal concept becomes even more important and viable through times like these. MEARIE’s structure and design provide financial strength and will allow MEARIE to successfully weather the hard market conditions. MEARIE Members can take comfort in their ability to rely on their Reciprocal Insurance Exchange through these turbulent times.
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This Reciprocal Newsletter is an electronic publication intended for Subscribers of The MEARIE Group’s Insurance programs. It is published on a periodic basis and intended for information purposes only. In the event of specific claims, incidents or legal actions against the Subscriber, coverage will be determined by MEARIE policy interpretation.
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