March 2, 2020

The Hardening Insurance Market – What to Expect and How to Prepare

There is quite a lot going in in the insurance industry as a whole right now and not much of it is positive. Different industries and types of coverage are being impacted more than others, but overall we are headed deeper into what is considered a “hard market,” where we see a consistent increase in renewal premiums and the tightening of underwriting guidelines and coverage offerings. 

Commercial property policyholders will see ongoing price increases and cuts in capacity through 2020. Rates and terms are being determined by each account’s specific profile – geographic location, catastrophe exposure and loss history. Double-digit rate hikes are common, while triple-digit increases are possible. Terms, deductibles, sub-limits, exclusions and coverage structure changes are all considered in the mix.

A significant factor contributing to the current state of the industry is the sharp uptick of social inflation. The median average of the top 50 liability verdicts in the U.S. has doubled from $27M to $54M in only 4 years (2014-2018). With more money going out to cover claims, insurance companies have had to raise rates to remain in business.

Another factor impacting the insurance market – recession concerns. Premium dollars are used almost exclusively to pay claims and administrative expenses (payroll, taxes, office expenses, advertising, etc.). Many insurers actually pay out more than they take in from premiums. Profits from investment activities support their financial viability. The investment piece allows them to make a profit and thus stay in business. Since there is worry the investment income may be reduced by recession, insurance companies are taking steps to remain profitable. 

For these reasons mainly, carriers are focusing now, much more than before, on controlling their loss ratio (losses ÷ premium) and reducing their loss combined ratio (losses ÷ (premium + expenses)). This results in increased premium, greater scrutiny on renewing bad risks, lower interest in writing new coverage for clients in high-risk business types or those with prior losses, and less interest in extending high casualty limits, to name a few.

The commercial auto segment should also be mentioned. With all the technology being put into new vehicles these days, seemingly minor damage from an accident can prove to be quite costly and distracted driving has increased the frequency of accidents dramatically. With a shortage of licensed commercial drivers, new drivers may be rushed through certification and put behind the wheel of large, dangerous vehicles before having the appropriate experience and training. Renewal pricing is expected to continue to trend upward even more so than other coverage lines.

How can you prepare? 

While the impact of the hardening insurance market on a particular company will depend on industry, class of business, risk profile and loss history, these suggestions are practical, indeed prudent, across the board.

  • If you have active risk management programs in place, continue to focus on them and ensure all levels of your business have “bought in,” from the President/Owner down to the new hire. Safety needs to be a culture in the workplace, not just an afterthought or pushed to the “we’ll worry about it later” list. If no programs are in place, work with your risk adviser or broker to create and implement risk management and loss control programs (safety manuals, fleet safety programs, employee handbooks, hiring guidelines, etc.).


  • If you haven’t reviewed open losses and loss control practices we strongly recommend doing so sooner rather than later. With the litigious environment that we currently live in today, insurance carriers are heavily targeting risk management practices, policies and procedures that are in place to help mitigate and minimize risk the property owners are utilizing when determining rate.


  • Many companies are looking to grow in the current strong economy, but low unemployment levels mean the “right” employees can be hard to find. You may be tempted to hire someone who is not a proper fit for the position you are looking to fill. A bad hire can cost you more than you stand to gain. Perform additional due diligence before extending offers. Perform background checks and drug tests, and call references. If you are hiring a driver, be sure to receive a copy of their driving record as part of due diligence. Simply put, make sure you are hiring the right people. 


  • When entering into contracts with other parties be sure you understand how much of their risk you are assuming and what your responsibilities are. Your risk adviser can provide experienced guidance and advice with respect to contractual risk transfer.


  • Consider purchasing or increasing the limits of an umbrella liability policy to ensure sufficient protection should you find yourself in a catastrophic suit. High limit umbrella coverage may require multiple layers of coverage with different carriers – your broker should be able to manage that process for you.


  • Make two lists – one with the top five or 10 business losses you could suffer that have the greatest chance of happening, and another with the losses that could cause the greatest damage to your business. Review these lists with your risk manager or insurance broker to ensure you have the coverage in place to respond to all.

Additional Resources

  • “Steps to Conducting a Successful Insurance Risk Analysis” (Webinar) – register online.
  • What to Expect from a Comprehensive Insurance Audit (info sheet)

Your Team

CBIZ’s mission is to provide high-level advisory and consultative brokerage services to our clients. We help clients manage their risk profile and expertly finance risk mitigation through insurance and other methods like captives. If you have questions about your risk profile or your current coverage, don’t hesitate to connect with the CBIZ Insurance Services Team or your CBIZ adviser.


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