By Crystal Jacobs 

Wouldn’t it be magical if all of a sudden everything that happened in 2020 was completely erased and any lingering effects were suddenly gone? Unfortunately, that isn’t reality. Even after we have been presumably “rid of COVID,” there will be lingering impacts and we will have changed the way we evaluate risk in our business and in life. The reality is, the consequences of COVID19 are vast – financially, mentally, emotionally and physically – and it is uncertain how long and how hard the impact will be.  

I’ve told you over the past six months that the insurance industry had a bit of a knee-jerk reaction to COVID. Immediate measures were put into place before any kind of actual impact occurred. Moratoriums were placed on certain business segments and certain lines of business. Capacity was reduced by carriers either refusing to put up higher limits on accounts or markets pulling out of segments all together. Rates were going up as appetites were reducing and the market was hardening faster than I have seen in years. 

I get many questions about my outlook on the insurance market, including “how long with the impact last?” “Do we expect rates to continue to go up?” “What carriers are even still out there?” But the main question I get is: “Why did insurers respond in this manner and what’s the long-term outlook?” 

Why Insurers Responded a Certain Way 

In insurance, there are the insured, the agent, the insurance carrier and the reinsurance carrier. Insurance carriers are risk-bearing entities. Most, if not all, carry reinsurance which is provided by reinsurance carriers. In the simplest explanation, it is insurance for insurance companies. As an example, an insurance carrier will take up to a certain dollar figure on losses and above the determined amount, reinsurance steps in so the insurance carrier can recover losses paid above that determined amount.  

As I have said before, insurance companies tend to be lean on their proverbial crystal ball to determine what impact large-scale events, such as natural disasters, will have on their loss figures. These forecasts come at the expense of insureds, as insurance companies pass down those loss costs through premium increases.   

With COVID-19, we don’t know what the full impact will be on the insurance industry and there is no data to tell us what could be next. Carriers have reacted in this manner as a pre-emptive action, assuming that there will be some kind of impact to their program — whether that be premium loss due to business closures or payments on loss.  

The other reason for this reaction … it is a way to be prepared for reinsurance renewals that come up around the first of the year. By showing reinsurers they have already taken action, carriers might be able to lessen potential rate increases in their reinsurance premiums. 

The Long-term Outlook 

Everyone — including insurance carriers — are wondering about the long-term, as there is still so much uncertainty. I think insureds should be concerned with three main factors on the long-term outlook regarding their insurance. 

1. Rates: I believe that rates may go up again after reinsurance renewals have settled; however, those rates will eventually level out. What I don’t think we will see in the near future is any rate relief. Insurance carriers have been subjected to an extremely soft market while taking on significant losses. I don’t believe they will be inclined to let go of the rates they have gained over the past nine to 12 months.   
    

2. Capacity: After reinsurance renewals take place, we will have better insight on this, but I think we will see a few more carriers fall by the wayside, causing a further shrinking of capacity in the market. I think we will also see carriers reduce the limits they are willing to write. If I had to make a guess, many of these changes will be based on geographic area rather than actual loss experience. 
    

3. Insurer solvency and longevity: I like to say there are two different types of carriers – ones that write for premium and ones that write for profit.  Carriers that write for premium are concerned only with the topline dollars that come into them while carriers that write for profit tend to be much more methodical about what they write as they are focused on what each risk poses from a loss perspective.   

Premium writing carriers typically cause rates to be driven down  to unreasonable levels, but there is no longevity in that method, and we  usually see these carriers stop writing within short periods of time. When  you have a carrier that writes for profit, you are typically looking at a more  solvent and long-lasting relationship with your insurance carrier. 

At Security America, we write with a focus on profitability. The decisions we make at underwriting are what allows us to have consistency where others are wavering. Security America has provided 15 years of coverage to an industry that was misunderstood or misclassified by insurance carriers.  

This program has continued to evolve as your exposures have evolved. It has withstood without major rate increases or capacity limitation, and it will continue to stand strong even in uncertain times.  

For more information visit securityamericains.com or contact a Security America representative at info@securitamericains.com or 866-315-3838. 

Call Rhett Butler or Crystal Jacobs at 866-315-3838 for more information on the Security America Insurance Programs and to get a free, no-obligation quote.