7 Ways Not to Screw Up Your Next Property Renewal
Seasoned insurance and risk managers have a list of basic rules they adhere to for ensuring the renewal of their property insurance program goes smoothly.
The list of ‘do’s’ include commencing the process well before the renewal date; promptly informing your insurer and broker of material changes occurring since the last renewal; adjusting cover as the company grows or changes; and ensuring cover extends to areas such as business interruption should an extreme weather event strike.
The ‘don’ts’ include omitting important underwriting information from the renewal submission; failing to update sums insured and limits of liability as necessary; not checking policy wordings to confirm what is and isn’t covered; and neglecting a back-up or ‘Plan B’ if renewal negotiations go less smoothly than expected.
To these basics, Marsh’s U.S. property practice leader Duncan Ellis recommends the following to ensure that renewal goes according to plan:
Be prepared to negotiate: The prolonged standard soft market characterized by regular rate reductions is over. There have now been four successive quarters of across-the-board increases; for the handful of programs that have achieved a reduction, it’s usually been in return for a concession such as a higher deductible.
So readiness to negotiate is now essential. That includes being prepared to work on your deductibles and make concessions. Many came down during the soft market, but in their bid to return to profitability, underwriters regard higher deductibles as an acceptable option to increasing premiums.
Conduct an honest review to separate the ‘need to haves’ from the ‘nice to haves’: During the soft market, enhancements were freely given but now is the time to review which of them you can dispense with without too much sacrifice. For example, is earthquake cover of $500 million on a facility essential or could you live with $100 million? More is always better, but not all add-ons are essential. So cut back as and where needed in recognition of the changing market.
Ensure you fully communicate your true risk profile: From installing sprinklers to retrofitting your buildings to make them quake resistant, inform the underwriter of improvements to ensure you get any resulting benefit.
Recognize the importance of modeling and analytics: Is your data in a modeling-ready format and have you tested it first with your broker? Every insurance program is now modeled by the underwriting community; if your data isn’t in modelling-ready format it’s doomed to failure.
Be aware that in both property insurance and other classes, underwriters are now focused on overall profitability: Although they accept that not every single book of business will always be profitable, they are employing strategies and tactics to restore profit, so books of business exposed to potentially heavy nat-cat losses will inevitably see an increase in rates.
Consider a longer-term program: These are still available, but the carrier will only enter into a longer-term program where they are assured that the client is committed and won’t subsequently cancel in year two should market conditions soften.
Longer-term programs need to make sense for both the underwriter and the client. The carrier needs the opportunity to make money – if it doesn’t represent a good deal they will be more included to stick with a one year program.
Alternative risk programs are worth exploring for larger companies: Traditional insurance and annual contracts work well for many companies, but a growing subset are ready to investigate alternative programs.
There are integrated programs, where as many as 10 different lines of coverage can combine into a single block of cover and the client gets an improved premium. It’s good business for the carrier, as often they are written on a multi-year basis and are particularly suited to larger clients – so it becomes a win-win for both sides.
Parametrics – aka index exceedance or event cover – is becoming more popular. Parametrics can provide a policy where the limit is triggered automatically by a certain event, such as winds gusting in excess of 90 mph near your property. Demand has grown from businesses weary of what can be a protracted claims settlement process under conventional cover.
Multi-year single limit (MYSL) is also in demand. Instead of buying catastrophe cover aggregated on an annual contract, a three-year policy offers a single limit spread over that period. A premium saving is provided in return for locking in with the carrier for all three years. However, if the limit is exhausted by a nat-cat event early during the period of coverage it’s possible to pay an agreed pre-loss additional premium to have it reinstated, rather than at the post-event higher price.
Lastly, be prepared to break some china if necessary. There’s always the risk of complacency setting in with a long-standing relationship, both with your insurer or broker. But risk and insurance managers should be ready to make changes if necessary – even where that involves breaking past relationships.