News & Insights

This article was republished with permission from Risk & Insurance.

By Andy Hendrix

COVID-19 has wreaked havoc across the world, and especially in the United States, in a way none of us could have expected. While schools are reopening and staying socially distant is top of mind, the implications on the U.S. property insurance market are not often discussed with nuance.

As an underwriter, I have seen how much the property market has changed in just six months. In particular, three larger macro trends are influencing the industry:

• The impact of COVID-19 on how public entities purchase insurance
• The increased financial stress on clients and insurers
• The pandemic’s overall contribution to the already hardening insurance/underwriting market

While these trends all seem discouraging, there is a silver lining: higher levels of collaboration between insurers and clients as we work together to ensure relationships remain strong and the insurance industry changes for the better.

1) Public Entities

First, let’s dive into an area hit particularly hard — public entities.

Because tax revenues are down due to the lack of business in municipal areas, local governments and publicly-funded entities may not be able to afford the coverage they once could. Due to COVID-19, the closing of restaurants, bars, retail shops and much more has meant local and state tax revenues are down.

Without the extra spending power, insurance for property may be seen as a logical cut.

However, risk is not going anywhere; public entities in particularly risky areas could potentially leave themselves vulnerable to much worse loss in the event of a major natural disaster. With hurricane season peaking, municipal governments will have to grapple with the classic “Should we or shouldn’t we?” approach to protecting against property damage.

Local governments are evaluating what they are spending money on today and what today’s spending will do to future fiscal budgets. They are speculating about what the new economy will look like and how that will translate into insurance buys.

Cities and urban areas are bracing for changes as more and more people move into the suburbs. What will properties look like in the future?

Insurers must work with these clients to talk them through how insurance is changing and how they can prepare for the future together.

2) Financial Stress

Second, insurers and clients are facing unique challenges in terms of financial stress.

The very nature of the business is changing. Insurers are actively trying to turn a profit for shareholders while rates go up for their clients. It’s going to be a challenging marketplace for the next few years, and good relationships must prevail for insurance companies to continue to operate and thrive.

Brokers need to be working with their clients to find creative solutions in these financially challenging times. Whether it’s reviewing policy options or advising clients on how they can bring rates down, brokers need to be solution-oriented. They can also leverage Insurtech tools or even recommend self-insuring portions of their exposures.

By working together and having honest conversations about needs and expectations, insurers and clients can lower costs and alleviate stress. It’s a symbiotic relationship, and demonstrating value and loyalty will pay dividends — quite literally.

3) Uncertainty Fueling a Hardening Market

Lastly, COVID-19 and its ripple effects are changing our economy. There’s only so much you can plan for as an insurer, and 2020 is testing that.

We’ve been swift, but we need to work with our clients to make sure we all perceive future risk in a synergetic way.

Uncertainty abounds as all consequences of COVID-19 are yet to be fully realized. This uncertainty, along with continued natural disasters, is what fuels rate increases and the hardening market.

This market is making business difficult for the insurer, the broker and the client. As pricing models get tougher, insurers are focusing on our niches of expertise and the entire supply chain will seek efficiencies in how we deliver products to our clients.

Finding a Silver Lining in 2020

Before 2020, we were talking about “social inflation,” which was forcing insurance companies to change how they insure.

Now the trend is accelerating, as the definitions of liability and risk are changing daily. The costs are high in 2020, and so are the risks.

Because the implications of our work are so wide, and the stakes are high — finding new methods to transact and find efficiencies within the supply chain is paramount for all parties.