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How to Mitigate Risk in a Hard Insurance Market

How to Mitigate Risk in a Hard Insurance Market

The commercial insurance marketplace is cyclical with fluctuating soft and hard markets. Since 1999, the U.S. has experienced predictably hard markets following the September 11, 2001, terrorist attacks, and the 2007-2009 Great Recession. Both were relatively brief followed by periods of insurance carriers reducing average premium costs and expanding of offerings. Starting Q4 2017, a new hard market period began. It is proving to be longer in duration.

Factors Causing Current Hard Insurance Market

Three underlying factors—severe weather, social inflation and increasing replacement costs—are causing insurers to increase premiums, tighten underwriting criteria, restrict terms, and reduce offerings.

Weather Events

The severity and frequency of extreme weather events is increasing. Hurricanes, tornadoes, hailstorms, winter storms, flooding, droughts, and wildfires are impacting businesses and property owners across the U.S. In 2023 there were 28 separate billion-dollar weather disasters. Years of costly disasters like these have compounded losses for carriers.

Social Inflation

According to a 2022 study published by the U.S. Chamber of Commerce Institute for Legal Reform (IRL), $443 billion was the cost and compensation of the U.S. tort system in 2020. That is equivalent to $3,621 per American household or 2.1 percent of the U.S. GDP. Lawsuits are increasing in frequency and settlement costs. Exceptionally large jury awards, nuclear verdicts of $10 million in damages or more are becoming increasingly common as public sentiment grows that companies can afford the losses.

Replacement Costs

 “A decade ago, cost of reconstruction or repair was $150 per square foot for commercial buildings,” according to Richard Ollis, CEO, Ollis/Akers/Arney Insurance & Business Advisors. “It has now tripled or more to $400-500 per square foot.” For some structures, the escalation of materials and labor cost are direct contributors to these increases.

“The tough part is I’m not sure I see the weather, the litigation market or cost of reconstruction changing for the significantly better anytime soon,” says Ollis.

Mitigating a Hard Insurance Market

Despite lingering market conditions, insureds do have the power to minimize the effects. Ollis explains, “It requires a different process than shopping, quoting, and buying.”

Changing Risk Management

Just managing risk is not enough. Developing a risk management program that is well documented and properly communicated to the marketplace makes an insured more attractive to carriers.

Seeking Professional Guidance

While some large companies have a risk management professional or even an entire team dedicated to minimizing risks, the majority of companies do not. But there are independent professionals that understand trends, how the market is likely to respond, and how to mitigate the effects.

Working with Independent Agency

The marketplace has a wide variety of insurance carriers that have different appetites for coverage, so working with a captive agency that can only offer one carrier makes insureds more vulnerable to the effects of a hard market. “With our understanding of carriers, we modify our array of offerings to a client based on the carrier’s ability to pay claims or what they’re doing in the marketplace,” says Ollis. “We can also assess a client’s risk profile. We make recommendations to improve their risk profile, which can include fleet safety, improvement of property conditions, reduction of losses and safety programs among others. Then we effectively communicate that to the carriers. That is what makes clients more attractive to the insurance marketplace and helps mitigate the effects of this hard insurance market.”

About Ollis/Akers/Arney Insurance & Business Advisors

Since 1885, Ollis/Akers/Arney Insurance & Business Advisors has provided consulting and insurance services to businesses and communities in southwest Missouri. Ollis/Akers/Arney provides business risk assessments and solutions, health and group benefits, human resources solutions and commercial as well as personal lines of insurance. Offices are in Springfield, Branson and Bolivar, Missouri and serve clients nationwide. Ollis/Akers/Arney has been nationally recognized by Independent Insurance Agents & Brokers of America, Inc. as a Best Practices Agency in the United States and as a Top Insurance Workplace from Insurance Business America in 2019, 2020, 2021, 2022, and 2023. The agency received a Torch Award for Ethics from the Better Business Bureau, Best Companies Group Best Places to Work, and 2023 Biz 417 Best Places to Work number one employer.

About Richard Ollis

Richard Ollis is a fourth-generation risk and insurance advisor specializing in business risk and has been in the industry more than thirty-five years.  He serves as CEO of Ollis/Akers/Arney Insurance & Business Advisors, Springfield’s largest independent insurance agency, founded in 1885. Richard, a veteran of the U.S. Navy, holds a Bachelor’s Degree in Finance from Missouri State University and serves on their College of Business Advisory Board. He regularly writes for the Springfield Business Journal and has hosted the radio talk show “Insurance Talk”. He currently serves on the board for the Missouri Association of Insurance Agents and The Wellness Council of America. Richard is a former two-term Springfield City Council member, past-Chairman of the Springfield Area Chamber of Commerce, and has served on boards for Commerce Bank, Springfield Convention and Visitors Bureau, Springfield/Branson National Airport, Hickory Hills Country Club and Safety Council of the Ozarks. In 2024, Richard was the recipient of the distinguished Springfieldian Award.

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