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Risk Managers' Forum

The hard market changes everything

In the hard market, agents should leverage risk management to increase retention and new business

By Erica Martinson, CIC, CRM, MBA

Firms that have been implementing good risk management programs will fare better in the hard market than those that have neglected this area. Luckily for this latter category of insureds, it's not too late for their agents to help them get on track for better results in the future. More and more insurance agents are adding risk management services to their value proposition. Now that the market is finally hardening, those agencies need to react appropriately to capitalize on their investment.

The market environment

Today's hard market is not the sudden spike in rates and loss of capacity that characterized the hard markets of 1975, 1984, and 2001. Instead, there's been a gradual but steady firming of rates driven by deterioration of combined ratios and the prolonged low interest rate environment. This slower pace means that insureds are seeing their insurance costs climb but are not so panicked that they don't have time to listen to proposals for mitigating those costs.

Signs are that the hard market will stick around for a while longer. While the P-C industry's results in the first three quarters of 2012 saw a return to profitability, the softening effect one might expect this to have on the market will be mitigated by Hurricane Sandy losses from October. The trend of increasing rates is likely to continue through 2013, according to Fitch Ratings' report on the P-C industry's 2013 outlook.1

Insurance carriers are not increasing rates across the board and are more flexible about making exceptions for the right insureds than in previous hard markets. In a recent survey of insurers, 64% of respondents said that their company's top goal in the hard market is "to ensure [a] high renewal rate of quality business."2

Key steps for maximizing the risk management ROI

• For insureds with a good risk management story, make sure to tell it to the carriers! Singing your clients' praises is something you should be doing all the time, but in a hard market it's especially vital to remind carriers of the ways in which your accounts are superior to the average account. Be proactive and reach out to the carrier's loss control division for support and additional resources to complement your agency's risk management services. This will build the carrier's perception of this insured as one of those they want to retain, and you won't have to take a defensive stand with the underwriter at renewal time.

• Make sure the insured knows you are leveraging the effort they have put into risk management to soften the effects of the hardening market. Involve the insured in the case you make to the carriers on their behalf. When a non-renewal is averted or a rate increase mitigated, you want the insured to recognize this quantifiable result of your risk management services!

• Don't assume you know everything your client is doing—there may be things that have been going on below the radar. If there is a problem area that is going to result in a large premium increase or a non-renewal, ask the insured about any loss control or risk transfer activities. Bringing them to light can keep costs down and improve the prospects for a renewal.

• The impact of a hard market renewal, whether it involves a non-renewal, a remarketing effort, an increase in the cost of insurance, or all three, can provide the impetus needed to get an insured to finally commit some resources to risk management. If you have clients who have resisted implementing new policies and procedures or have been "too busy running the business," now is the time to get back in there and talk about how the experience might have been different. The message shouldn't be a punitive, finger-wagging "I told you so," but a re-introduction of steps they can take to reduce their cost of risk in the future. If the insured has been slammed hard with premium increases, try to emphasize risk management techniques that will not require additional outlays of funds.

• New business opportunities exist where insureds have had a tough renewal and are feeling frustrated and helpless. Even when they know their loss experience has been poor, insureds often resent the premium increases that result. Giving them risk management tools gives them the power to proactively affect their future. Showcase success stories with existing clients to highlight the difference between you and agents who don't support risk management. Ask existing clients for testimonials that focus on your risk management services, and include them in your marketing materials.

Success stories

Our agency recently heard from a carrier that was planning to increase rates by 15% or more on the renewal of a large social service agency. Although the insured had been with this market for many years, the carrier was seeking to raise the overall rate, and the insured's loss experience had deteriorated recently. The carrier's niche program was a good fit for this insured because of the nature of their operations and the coverages provided. The insured was happy with the way the carrier had handled some tough claims in the past and did not want to change. By filling the carrier in on all the risk management activities that the insured had undertaken since we became their agent a year ago, including a centralized contract review and certificate of insurance management process, as well as formation of a safety committee, we were able to keep the overall rate increase to less than 5%.

In another case, we were able to open a relationship with an organization that had gone through one more in a series of rough workers compensation renewals. The company knew their loss experience was bad but felt helpless as they were slammed by ever-increasing premiums and beset by the lost productivity and disruption that result when employees are injured. By showing them tools that would help them understand, manage, and predict their costs, as well as programs that would ultimately improve their loss experience, we were able to bring order out of chaos and a sense of control that had been lacking. We took over the entire P-C account on a broker of record letter and expect to write their benefits as well.

The takeaway

Agents' bottom lines tend to improve in a hard market, although we also find ourselves working harder to remarket accounts whose premiums are going up. Insurance consumers need more than just the best price to make them stick with a particular agent. They need to believe that the agent knows their business and is on their team. Risk management services and coaching is a logical way to provide that added value and strengthen ties with your customers. In the hard market, the need is even greater, as are the opportunities and the potential payoff!

1 "P/C Insurers' Capacity at 'Historically High' Levels: Fitch." Insurance (14 December 2012)

2 "Survey Finds Insurance Carriers Looking Toward Hard Market." Property Casualty (6 November 2012)

The author

Erica Martinson, CIC, CRM, MBA, has served as director of risk management services since 2006 at The Rollins Agency in Rye Brook, New York. Prior to joining Rollins in 2000, she held positions as a marketing manager and account executive in several brokers' commercial lines divisions. A self-described "insurance nerd, " she holds an MBA from Pace University and a BBA from The College of Insurance, and teaches in the P-C brokers' pre-licensing education and CPCU programs at Westchester Community College. For information on CRM and CIC programs, go to:

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