The ongoing trend toward increasing rates underscores a simple truth: No one wants to pay more for anything, and that includes insurance. With the changing rate environment expected to continue into 2020, it’s helpful to consider some of the reasons for the current state of rates:
- In the public company space for both financial institutions and commercial companies, securities class action filings reached near-record levels for core and merger objection filings in 2018. Meanwhile market capitalization losses topped $1 trillion, pushed by a high number of mega filings.
- For financial institutions, large private equity and bank losses have impacted profitability, which has created the need for rate increases in these lines of business.
- Coverage in general has expanded over the years and defense costs have increased, but premiums have continually decreased.
- Some insurance carriers are cutting back on capacity, which creates a need for support in the market.
Given this reality, when brokers are planning how to announce a price increase to clients, I recommend brokers consider taking the following steps to help frame rate increases for their clients and set expectations:
1. Get ahead of renewals.
Brokers should be proactive and initiate conversations with clients at least 120 days in advance of the renewal, as there may be changes to the program. Be clear with clients about what to expect on renewal terms.
2. Consider facilitating direct conversations between underwriters and clients.
I recommend doing this whenever possible, because the underwriter can help the client understand certain aspects of their particular risk that are causing strain in the industry and have impacted the rate environment.
3. Maintain regular communication with clients.
It’s important to avoid surprising clients. Brokers should apprise them of changing market conditions throughout the policy year and provide quarterly updates on any relevant developments. When there are no surprises, the client can then relay the message internally, which helps them garner the support they need for a premium increase.
Brokers in the financial institutions arena should evaluate whether their current carrier treats them as a partner to come up with solutions that may fall outside the box of a strict approach to appetite. Argo Pro, for example, has doubled its underwriting staff to help fill gaps in the market and has rolled out new asset management and private equity forms to provide primary coverage in the middle market arena.
The rate increase trend doesn’t seem to be slowing down. Communicating rate increases will be easier for brokers if they actively seek clarity on upcoming renewal terms, set up conversations as needed between underwriters and clients and keep their clients informed.
Learn more about Argo Pro’s diversified financial institutions products.
Mary Henderson is senior vice president, financial institutions, for Argo Pro.