It is no secret that 2020 has been a year unlike any other, COVID-19, wildfires, major storms, jury verdicts, and social inflation. The statistics of these events are astounding, and they will have a lasting impact on the insurance industry and global economy as a whole:
Except for COVID-19 claims, the cost from most of these damages will be borne by insurance companies. The combination of these events has resulted in many insurance carriers realizing significant underwriting deficits. This has contributed to combined ratios well over 100%—effectively reflecting their incurred claims (and expenses associated with those claims) exceeding the premiums they collected.
The insurance underwriting operations of Berkshire Hathaway recently announced a Q3 2020 loss of $213 million, AIG posted an underwriting loss of $423 million and Chubb, while reporting a net income, announced catastrophe losses of $797 million. The uncertainty surrounding COVID-19 and potential claims from the pandemic is real and cannot yet be quantified. Insurance carriers expect to pay significant dollars defending COVID-19 claims from their insureds, thus creating the possibility of additional rating debits.
One thing underwriters have made abundantly clear during this challenging renewal environment is that simply blasting a submission to multiple insurance carriers to find competitive pricing, will not produce the effective results it may have in the past. This new environment requires a different approach. Strategically marketing your specific data is imperative to secure the best option available in the current market.
Partnering with your broker in the following areas can help your company achieve more favorable terms in a hard market:
- Safety/Loss control
- Claims management
- Alternative risk solutions
Find the Right Program
Effective safety and loss control programs are vital to any construction company. Every company aspires to prevent injuries (or worse) from happening, thus protecting its most important asset—employees. Having an intentional, industry-relevant safety program is one of the most effective ways to achieve this. A great place to start is with your broker—utilize their internal capabilities to supplement your company’s safety programs. They can help evaluate your claims’ analytics, as well as evaluate the frequent claims within the industry to effectively prevent similar incidents. Having your broker involved enables your company’s year-round safety initiatives to be recorded and communicated to the insurance carriers, which will support your effort in securing favorable terms.
Even with effective safety protocols in place, claims will occur. Your company’s ability to mitigate those claims will drastically improve its risk profile. A broker’s internal professional claims team will facilitate between the carrier and your executive team (and claimant when applicable) while ensuring your claims stay on the quickest path to resolution. This cradle-to-grave approach will enable you to lessen the cost/value of each claim. Consistent and aggressive claims management will lower claims’ reserves, improve your experience mod, and provide more control with the overall claims’ process. Most construction companies are simply not staffed to manage this process, so being able to lean on a broker who has the resources and dedicated claims team is imperative, and in many cases, will reduce premiums.
Group captives are an additional way your company can use creative alternative risk solutions to successfully protect itself from rising insurance premiums. Not all companies qualify to join a group captive. However, for those that do qualify, a group captive can be an incredibly effective and cost-efficient risk management solution. These captives enable best-in-class companies (defined as those with favorable claims history and aggressive safety programs) to pool together with other best-in-class risks to more efficiently transfer risk. Upon joining, your premium costs are in most cases much more competitively priced. Other loss sensitive programs may be a competitive option as well. Essentially, any program where your premiums are based on your claims—and not on the market—has proven to be much more attractive than traditional carriers. Allowing your broker’s internal capabilities in loss control and claims management to augment your existing safety and claims practices will best prepare you for the alternative risk markets.
