How to Pivot in a Hard Market

In a hard market, there’s a market cycle of high demand for coverage coupled with a reduced supply. This decrease in supply may be due to several factors, including an increase in weather-related losses, rising labor costs, and supply chain shortages. When insurance premiums increase to reflect the hard market, and underwriting criteria become stricter, it’s time to pivot and adapt to the changing landscape. Insurers can continue to thrive during these challenges by implementing several key strategies.


Risk Selection and Underwriting Discipline

In a hard market, insurers should focus on improving their risk selection and underwriting processes. This involves increasing their scrutiny of applicants’ risk profiles, financial stability, claims history, and other relevant factors to ensure all accepted risks still meet the insurer’s financial goals. Insurers may also require policyholders to take specific steps to reduce risk or provide evidence of risk management programs already in place.

Insurers may also want to identify profitable lines of business and avoid high-risk or underperforming markets. High-risk segments include those with frequent claims or those exposed to high-level risks, such as natural disasters. By upholding strict underwriting standards, insurers can minimize potential losses and improve their overall profitability.

This focused discipline around risk and underwriting can help insurers navigate the challenging market conditions and stay financially stable while protecting their policyholders and managing risk.


Adjust Prices as Necessary

Insurers should carefully evaluate their pricing models to ensure they reflect the increased risks and market conditions. This may involve adjusting premiums to more accurately reflect the cost of coverage and potential claims. Factors to take into account when managing premiums include claims experience, loss trends, and overall market dynamics.

Proper pricing of policies helps insurers remain sustainable in a hard market and ensures that the premiums collected adequately cover potential losses.


Diversify Your Portfolio

Insurers can diversify their portfolio by expanding into lines of business that are less affected by the current market conditions. They can also explore untapped markets. This can help spread risks across different segments and reduce the impact of a challenging market in any single area. Diversification can also provide opportunities for growth and access to new groups of customers.

Diversifying a portfolio may also include innovating with new products. Insurers can develop and introduce new insurance products or coverage options that cater to emerging risks or new customer needs. Staying ahead of market trends and offering innovative solutions can help insurers set themselves apart from the crowd and attract new customers.


Strengthen Underwriting Guidelines

Insurers can update and strengthen their underwriting guidelines to reflect the current market conditions. This may involve reconsidering their appetite for risk, setting stricter risk assessment criteria, or implementing additional risk control measures. Tools that can help with this process include automated underwriting systems, data analytics, and predictive modeling software.

Additionally, insurers should invest in ongoing training and education programs for underwriters to improve their skills and knowledge. A significant part of this training should include staying updated on emerging risks, industry trends, and regulatory changes. Properly equipped underwriters are more likely to make better underwriting decisions.

Strengthening underwriting guidelines and investing in training helps insurers maintain consistency, accuracy, and efficiency during the underwriting process. As a result, insurers can better manage their risk exposure and improve results.


Risk Management Services

Offering risk management services can be another effective way for insurers to differentiate themselves in a hard market. Examples include risk assessment questionnaires, online risk assessment tools, safety manuals, best practices guides, and access to risk management professionals who can evaluate the policyholder’s risks and provide guidance on mitigating those risks. Cybersecurity education, tools, and coaching are also helpful for reducing online threats.

By providing policyholders with resources, tools, and guidance to mitigate risks, insurers can help reduce potential losses and improve the overall risk profile of their portfolios. This can lead to better underwriting results and increased customer satisfaction.


Automate Technology Where Possible

Embracing technology and automation can help insurers streamline operations, improve efficiency, and reduce costs. Some examples of technology to pursue include:

  • Advanced data analytics software to analyze historical claims data and market trends.
  • Predictive modeling and machine learning algorithms to assess risks and predict losses
  • Customer portals for policyholders to access policy information, file claims, and request support
  • Claims management software or applications to address claims intake, documentation, and evaluation
  • Fraud detection and prevention tools to identify and prevent fraud

Implementing advanced analytics, using digital platforms, automating underwriting processes, and more can improve risk assessment, expedite policy issuance, and improve overall effectiveness for insurers.


Improve Customer Communication and Education

Clear and transparent communication with policyholders is crucial during a hard market. Insurers should proactively communicate the reasons behind rate increases, changes in underwriting criteria, or adjustments in coverage terms.

Insurers can also use customer data and analytics to personalize their communications with policyholders. By understanding individual needs, insurers can provide targeted information, more relevant updates, and tailored recommendations.

Providing educational materials and resources can help policyholders understand the value of insurance and make informed decisions. Examples include FAQs, brochures, articles, and online resources explaining market dynamics, reasons for rate increases, risk management tips, and more. Online portals and self-service tools can also help policyholders stay informed.


Collaborative Partnerships

Insurers can establish collaborative partnerships with reinsurers, brokers, and other industry stakeholders to navigate the challenges of a hard market. Sharing expertise, accessing additional distribution channels, and exploring other ways to transfer risk can provide insurers with greater stability and flexibility during unpredictable times.

Collaboration can also help insurers enhance their product offerings by combining their strengths with those of others. There are possibilities for working with tech companies to innovate products or working with reinsurers to offer better solutions.

Collaborating with industry associations or regulatory bodies can help insurers navigate regulations and give them a platform to share concerns. These networking strategies can help insurers shape policies that promote stability and fairness in a hard market.


Specifically for The Independent Agent

For the independent agent navigating these challenging times, here are some strategies to consider:

  • Stay informed! Make sure you’re up-to-date on trends, market dynamics, and emerging risks.
  • Educate staff and clients on the current state of the market using all platforms.
  • Be the loudest and most communicative, as this will set you apart from others avoiding the conversation.
  • Be sure to explain the reasons for premium increases, coverage limitations, and the importance of proactive risk management.
  • Collaborate with carriers for resources to help educate the insured. These may include insights, best practices, and other resources.
  • Networking and participating in industry events or forms can provide valuable learning opportunities and strategies.
  • Update agency workflows to account for any changes. This may include leveraging technology and automation.
  • Create cheat sheets to help teams/staff stay up-to-date with carrier restrictions and changes.
  • Shift focus to lines of business not impacted.
  • Provide “raving fan” customer service. Prioritize responsiveness, clear communication, and accessibility to address policyholder concerns and inquiries promptly. Building strong relationships while demonstrating exceptional service can help agents retain current clients and earn referrals.

Independent insurance agents can absolutely thrive in a hard market. Adapting to the changing landscape, focusing on client needs, and leveraging resources will help agents overcome challenges and set themselves up for success.


Final Thoughts

By implementing these strategies, insurers can pivot in a hard market, adapt to changing conditions, and position themselves for continued success amid turbulent times. Adapting underwriting practices, adjusting pricing, diversifying portfolios, strengthening risk management, leveraging technology, improving communication, and fostering partnerships can help insurers thrive in a challenging market.

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