Protection at a Premium

After decades of low premiums and abundant capacity, we are now in the midst of a ‘hard’ insurance market.

But, what exactly does that mean? In a nutshell, insurance now costs a lot more in 2023 for our clients and is harder to find.

You’ve already heard about how inflation is affecting everything, including insurance premiums and claims. And, there are other factors like higher interest rates, more lawsuits and severe weather events resulting in substantial claim losses that are compounding the insurance market.

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Today’s insurance market challenges

After decades of low premiums and abundant carrier options, the insurance industry has seen coverage premiums increase by more than 5% for a several years indicating a ‘hard market’.

Here are three things you should know about today’s insurance market:

  • Hard markets are cyclical. However, we don’t know how long they will last.
  • During a hard market, there may be fewer insurers competing for your business.
  • A hard market causes coverage to be more expensive, and insurers also may reduce the amount of your policy limits or modify your coverage terms.

Why now

Several factors have driven the frequency and severity of rising claims in recent years.

  • Insurers have recorded 26.5 billion in underwriting loss in 2022, up from 21.5 billion in 2021. (AM Best)
  • Climate change has made 2022 one the most expensive years on record for natural disasters, with more than $120 billion in insured losses. This is significantly higher than previous years. (Munich Re)
  • The rising cost of litigation (lawsuits) has caused in increase in claims payouts. (Triple-I)
  • And the economic challenges; supply chains issues and record inflation have simply made it more expensive for insurers to pay claims.

What to expect

We know that insurance premiums are increasing at rates faster than you have likely experienced before. The impact of the “hard market” doesn’t only affect just one carrier.  The significant losses experienced in the Midwest and across the country has had an impact on ALL carriers.

What we know:

As a client, your first response may be to shop for new insurance. And, we understand. But we want you to be aware of the following:

  • Customer loyalty to an insurance carrier is important in times like these.
  • When hard markets hit, carriers’ appetite changes. Carriers simply decline new business opportunities. Less competition for your business.
  • Many carriers are not offering the same level of coverage as they had prior to the hard market hitting.

What does this mean for you?  We may not find a product with the coverages that you are accustomed to.

Our pledge to you

As a local independent community agency, we understand your needs and will use our access to multiple carriers to find solutions that will address needs based on your unique situation. Our experienced agents will guide you and help you adapt coverage as your family’s or business’s needs change.  And, we’re here for you when the unexpected happens. We can help you navigate through the claims process.

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Business Customers IconChanges to commercial insurance

Commercial rates are increasing on nearly every line of coverage, thanks to a rise in the frequency and severity of claims. In addition to significant premium hikes at policy renewal time, additional changes may be less noticeable including changes to policy requirements, new coverage limits and policy exclusions that carriers are enacting to limit future liability

To protect your business interests, you need to know what to look for when renewing your insurance policy. Here are some pointers.

Increased Premiums

For several years, claim payouts have exceeded what insurers have earned. This is due to a combination of factor such as a steady increase in extreme weather events, lawsuits and nuclear verdicts (over $10 million), inflation and poor returns on insurers’ investments

Insurance companies are losing appetite for risk, including how they spend and invest their capital. Businesses that they insure are a part of their investment capital strategy. As finances get tighter, insurance companies begin offloading the businesses they think are at risk for catastrophic payouts.

At the least, they respond with higher premiums to compensate for higher pricing. At the worst, they exit markets completely.

Property and commercial auto insurance, two essential coverages, have been hit particularly hard due to the rising cost of repairs. Insurers have raised their policy premiums to have enough money to pay current and future claims.

In fact, premiums are generally up across most major commercial lines of business, according to the Ivans Index Q2 2023. Ivans spotlighted premium renewal rates in the second quarter of 2023 across several standard commercial lines:

  • Commercial auto increased by an average of 12.50%.
  • Business owners policy premiums were up an average of 17.56%.
  • General liability premiums hovered around 5.21%.
  • Commercial property premiums rose to an average of 19.77%.
  • Umbrella rates were up slightly, at 10.12%.

Cyber liability insurance stands out as an area with particularly volatile rates. According to Fitch Ratings, stand-alone cyber liability policy premiums increased 62% in 2022 but began leveling off in the second quarter of 2023.

insurance Policy Term changes

Insurers can do more than raise their rates to control their losses. In the case of cyber insurance, they’re excluding certain kinds of cyberattacks and demanding that policyholders demonstrate good cybersecurity before issuing policies.

Across commercial lines, insurance companies are also:

  • Requiring businesses to have higher deductibles (or retentions)
  • Excluding high-loss perils
  • Setting lower policy limits to offset how much they’ll cover in case of a total loss, which might be less than an event actually costs
  • Establishing sub-limits, which are lower levels of coverage than the overall policy limit for specific losses

Some coverage changes to look out for:

Property insurance — Insurers are requiring updated property valuations because the costs to rebuild are so high. They are also instituting policy sublimits (for mold and other water damage, for example). Coverage availability in high-risk areas is often minimal, making it more difficult for businesses to find coverage in some locations.

Business interruption — Coverage for weather-related shutdowns is also becoming pricier and more restrictive. And policy terms are being changed on vacant property clauses, affecting the number of days a property can be vacant before it is no longer fully insured.

Liability — Some policies are becoming more restrictive, particularly for environmental and pollution coverage, abuse and molestation, and assault and battery. More insurance carriers are limiting their exposure to these claims, which tend to be high cost. In addition to coverage changes, businesses must determine if they need to upgrade their commercial insurance to protect against liabilities arising from new laws and regulations.

Pay attention to clauses that limit who is covered. For example, general liability and business owner policies don’t cover you if an employee sues you for discrimination, harassment or other employment violations. You’ll need to add employment practices liability insurance for that.

Commercial auto — Inflation, high-tech vehicles and an increase in the severity of accidents are making auto repairs more expensive. Bodily injury claims have also gone up substantially. Insurers are responding by increasing deductibles and giving preference to companies with good records and fleet management.

Did you know that if you use electric vehicles or connected fleets, you could be at risk for a cyberattack, which isn’t covered by auto policies. You’ll need to add cyber liability coverage.

Understand your coverage

The first and most important thing is to read every part of your commercial insurance agreements. Look for what’s covered and excluded and scrutinize every section.

These agreements state when your insurer will pay, how much they will pay, what you must do to qualify for payments, and how coverage disputes will be handled.   A trusted and experienced agent will understand and explain these provisions to you.

Strategize your insurance plan

Enter the process with your budget in mind. You might be able to take on more financial risk yourself in some areas. This technique can free up money to shift into larger policy limits or enhance coverage in higher-risk areas.

Play up your strengths so your business is attractive to insurance companies. Insurers typically give lower premiums to organizations that demonstrate good risk management and have fewer claims. Your agent can help your cause by showing an underwriter your qualifications. They can often negotiate better terms by getting to know your business and then selling your story.

Tap the experience of your agent who will visit your business to evaluate the risks of your property and operations. If you are new to Bank Midwest, this is one way we get to know you and your company better.  If you are a long term client, we need to know about any changes you’ve made so we can ensure you’re properly insured. We’ll suggest improvements to help position your business better with the insurance carriers — highlighting your strengths and show you’re a worthy risk.

As an independent agency, our relationships with many insurance companies provide an opportunity to compare quotes and policies from multiple insurance companies, not just one. Pricing, coverage options, claims processing, customer service and value-adds should play equal parts in your coverage comparison and we’ll help you narrow the field.

Call for your business review

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Frequently asked questions

  • What is a “hard market” in insurance?

    A hard market means insurance companies are raising rates and restricting their capacity – their willingness to accept new or increased risk – making it more expensive and difficult to get the coverage you need. Your rates are affected by factors such as overall market conditions and your specific risks.

    (For example, if you’re a contractor, such as a roofer, you may see higher premium increases than those in other trades, such as landscapers, because your operations create a higher risk exposure. The same holds true in the personal market, where a home located in a wildfire-prone area presents a higher risk profile for insurers than one located in an area with little exposure to wildfires.)

  • What causes a hard market?

    Economic conditions and claims frequency, over time, hurt the insurance industry’s profits and create a hard market. When more frequent claims and higher claims payouts occur consistently over a period of time, insurers begin to pull back from markets and increase premiums. Record-setting insured losses from catastrophes, rising inflation, increased labor costs and supply chain challenges all contributed to this current hard market.

  • How long will this hard market last?

    Like the economy, hard insurance markets are cyclical. A hard market will vary in length and severity, depending on prevailing economic challenges, inflation rates and the type of insurance affected.

  • How can an insurance agent help me in a hard market?

    Independent insurance agents are knowledgeable insurance professionals. They are a trusted resource and have long-standing relationships with insurers. They also understand the proper coverage for your risks and can advocate on your behalf.

  • I’ve had no claims. Why are my premiums increasing so much?

    Premium increases are not just tied to a specific customer’s coverage, but to the overall insurance market.

    Inflation has significantly increased the prices of goods, especially for labor, construction and auto repair materials. Insurers have experienced a significant gap between the policy pricing and their current claims payouts. This gap contributes to the current hard market.