For an Industry That Tries to Predict the Future, There’s a lot of Unknowns

Matthew Lerner at Business Insurance recently released an article outlining the Underwriting profit/loss activity report from AM Best for the first nine months of 2021. The report was specific to the US Property and Casualty industry and shed some serious light on the potential future market activity. However, how this affects us, can be a real dilemma. As the title mentions, for an industry that tries to predict the future, there’s a lot of unknowns ahead.

The Data:

The U.S Property/Casualty insurance industry experienced a $6.9 Billion net underwriter loss through the first nine months of 2021. This compares to a net underwriting profit of $300 Million through the same period in 2020. Yes, you read that correctly, billions vs millions.

Net Premiums written through the first 9 months increased 10.8% and net investment income rose 7.8%.
However, growth in losses, loss-adjustment expenses, and underwriting expenses outgrew any growth in premium or investment income.

So what’s the dilemma and how does this affect you?

Great question. I’m glad you asked!

First- a net underwriting loss such as this can result in one of two market behaviors. Most likely, the markets could tighten drastically to prevent further loss. This would result in more strict appetites, minimal wiggle room on underwriting guidelines, decreased limits, and minimal tolerance for loss. Or, the markets could attempt to bring in more premium by taking on riskier insureds.

Second- Agencies see benefit to the bottom line due to premium increases, but at what cost? As you know, a difficult market leads to major headaches the insureds don’t always understand, despite our best efforts.

Lastly- More marketing, re-marketing, and E&S. While some markets may take on riskier policies to generate premium; it’s more likely the markets will tighten up. This normally means any risk with just a slight oddity in exposure or loss will need to be marketed and your admitted carriers may be reluctant to entertain it.

So How Can your Wholesaler Help?

Another great question! The reality is our region of the U.S is fortunate in that we’re usually experiencing these trends less in comparison to the rest of the country. However, it’s certainly something to get ahead of, and working with the right wholesaler will make all the difference! Your wholesaler should:

• Know the markets and the market behaviors.
• Be strategic in their marketing rather than taking a shotgun approach. Too often the shotgun approach of throwing a risk to the market and seeing who bites leaves too much on the table. A strategic approach can get the most out of the marketplace.
• Communicate more than ever. They should educate you on the approach and set the tone and expectations so you can do the same for your insureds.

We’re experiencing some goofy times at present and the future holds a lot of “what ifs” and uncertainty. Knowing the marketplace, being prepared, and working with the right folks can at least bring some relief to you and your insureds. We’re always here to help!

What are you experiencing in the current marketplace? Are there any specific risks or coverages you’re having difficulty with? We’d love to hear your feedback!