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The Cycle of the Insurance Market

insurance premiums

The cycle of the insurance market is very reliant on the supply and demand of the market.  As we enter 2020, the insurance industry will likely experience some changes in the marketplace.  

We’ve been in a soft market for several years. A soft market typically means insurance companies are focused on premium growth, as they are making money elsewhere, such as investment income. This allows them to charge lower premiums in an effort to grow their market share.  In addition, they relax their guidelines, which in turn means more carriers are willing to provide quotes resulting in lower insurance premiums for insureds. 

Over the past several years, rates have either decreased or remained level. However, insurance companies started tightening up last year and are indicating an increase in rates for 2020.  We are likely headed for a hard market.   

hard market generally results because insurance companies have not been as profitable as they would like to be. 

Three factors typically impact a hard market: 

  • Insurance companies are not making money elsewhere on the investment income.
  • Because of several years of flat or decreased premiums, losses catch up and eventually the insurance companies aren’t as profitable as they like or need to be, so in turn, they increase premiums.   
  • Insurance companies start tightening their guidelines (ex: not providing insurance on buildings that don’t have hardwired smoke detectors), which limits the number of carriers willing to provide a quote 

Essentially, the insurance companies forgo premium growth in effort to return to profitability. As a result of these factors, insureds typically end up paying more in insurance premiums. 

What else could cause premium increases? 

Losses are the single biggest reason why premiums increase.  When agents are quoting insurance for their clients, carriers request 5 years of loss history.  The carrier is then analyzing any claim or incident that was reported within the last 5 years. If there are too many losses paid or reported, an insurance company can and will either increase the premium or cancel coverage. 

Also, if your building has Federal Pacific Stab Lok Circuit Breakers this could also be a huge determiner for increased premiums.  Circuit breaker panels that were sold by Federal Pacific Electric between the 1950s and 1990s have been known to be problematic. Approximately 1 out of 3 breakers are defective.  If a breaker fails to trip when it should, the wires that are supposed to be protected can catch fire.  Insurance companies may not provide quotes to buildings with Federal Pacific Circuit Breakers and are requiring that the panels be changed.  Some companies are canceling policies if they breakers aren’t changed. 

Once these panels are replaced it will open up more options for carriers to provide quotes and will drive down the price even further.  This could be critical for your building in the next couple of years as the market continues to tighten and rates go up.  Although the cost may be an issue, replacing Federal Pacific Circuit breakers will be worth the expense and will broaden the number of carriers that are willing to quote your building. 

For more information, please  contact us. 

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