News

The “Hardening” Market                         Winter/Spring 2001

Those with more than ten years’ experience in business may remember the last hard market in the mid-1980s.  Companies with favorable loss histories were seeing their premiums double, triple, even quadruple.  Others learned that their coverage was non-renewing and were unable to obtain coverage at any price.

While the current market has not deteriorated nearly to the point that it did in the 80s, it does remind us of an extremely difficult time. This most recent tightening of the market began shortly after the stock market “correction” in March of 2000.  After more than ten years of a soft (buyers) market in the insurance industry, the tables have turned and premiums are now increasing, in some instances, exponentially. 

What caused this sudden turn?  Some say it is a result of the over inflated market cap and instability in the Dow and NASDAQ.  Others point to mergers and acquisitions not only within the insurance industry, but the impact of corporate mega-merger policyholders realizing economies.  Higher reinsurance costs have also been blamed as a source for increasing premiums.  Some major insurance companies have recently been downgraded by the rating agencies, Frontier, Fremont and Legion to name a few; while some have discontinued operations or completely collapsed, like Reliance.  As a result, the industry must absorb these large books of business that are sometimes viewed as “tainted”.  Although there have been fewer catastrophic losses, i.e. Hurricanes or Earthquakes in recent years, the property underwriters are extremely concerned about high concentration of insured values in areas prone to these catastrophic events.  Even though there has been a decline in the volume of litigated tort cases, this last year has seen a record in award amounts.

The bottom line is this; insurance companies must rely on their investment income, absorb higher reinsurance costs, and react to questionable reserving practices.   The result… higher prices and less capacity.  If our economy is in the midst of an economic downturn, the timing couldn’t be worse.

What can you do to avoid a crisis?

• Take a hard look at your loss experience and identify trends and potential problems and be pro-active about minimizing losses.
• Re-emphasize the importance of safety and loss control programs.
• If your insurance program hasn’t been bid in recent years, now is the time to do it.
• Explore alternatives to conventional approaches to purchasing insurance.  

Stockbridge Risk Management, Inc.
40 Cutter Mill Road, Great Neck, NY 11021-3213
Phone: 516-487-1700