If your insurance rates have been going up, you may be wondering why. This is especially true if your claims activity is low and you have had little to no losses over the past year. What is causing this spike in insurance premiums, and what can you do to help mitigate it?


Current business risks


The insurance market is cyclical, bouncing between a hard and soft market situation. Previously, the market had an excessively long period as “soft,” while premiums remained stable, coverage was robust, and rates decreased or remained unchanged. However, business risks have resulted in our current hard market. This is due to many factors, including the pandemic and restrictions for business operations that have made profitability more challenging, not to mention cyber breaches, trade risks, political risks, and even climate change. Now more than ever, companies are relying on insurance to help manage losses in the midst of the hard market: with no end in sight.


Reasons for the hardened insurance market


The following are causes for the current market situation we now find ourselves in:


  • Catastrophic losses reported by insureds due to an onslaught of natural disasters, like hurricanes, wildfires, and floods, not to mention the COVID-19 pandemic.
  • Increased reinsurance costs, with corresponding insurance rate increases.
  • Higher and more severe claims costs coupled with litigation costs, more inclusive contract terms, and high jury awards without corresponding insurance rate increases (until recently).
  • Underwriting losses due to low-interest rates, causing carriers to be more restrictive on the policies they are willing to underwrite.
  • Apprehensive investors waiting to provide capital until market stabilization has returned.
  • A disrupted and unsteady global economy.


What to expect in a hardened market


Insurance is a necessary, but expensive, means of protection for companies. As a result of the current market situation, you can expect the following when purchasing an insurance policy:


  • Higher premiums
  • More restrictive underwriting requiring more information about your company’s risk and characteristics
  • Restricted coverage, including exclusions
  • Nonrenewal notices
  • Slashing of limits


Risk protection beyond insurance


It can help to take a full-picture view of your options when it comes to protecting your assets. Yes, insurance is one option. But you may also want to consider higher deductibles, self-funding, working with a captive, and other possibilities to help manage risk.


If you’re interested in exploring your options to help manage your risk, Odell Studner can help. We specialize in consultative services that help companies reduce risk, accelerate growth and increase profitability. To learn more about working with us as a trusted business partner, just reach out today.