How to navigate the current insurance environment

21 February 2024

Navigating the currents of the insurance market has always been complex, requiring businesses to maneuver through a range of challenges. In recent times, the landscape has become even more daunting due to a confluence of factors. From the relentless grip of inflation to the soaring costs of claims, the industry finds itself in the midst of unprecedented times. As businesses strive to secure coverage that aligns with their needs, understanding the intricacies of the current environment is not merely advantageous but imperative.

The best organizations use their risk position as a competitive advantage. They understand their own data and how it can work for them and against them when determining the right way to manage and finance their risk.

Let’s talk inflation

Current inflation gauges suggest that while there may be a glimmer of hope on the horizon, challenges persist. Though economic stabilization may be coming our way, the overarching theme remains one of volatility, with prices and rates in all markets poised to continue their unpredictable dance in the foreseeable future.

Inflation has reached the insurance industry through exploding claims and litigation costs, which is best understood by insurance professionals as social inflation. Social inflation refers to an insurer’s cost of claims that rises at a higher rate than general economic inflation (1). Even if you are not immersed in the day-to-day of the insurance world you are likely aware of social inflation. The two most obvious causes of the rise in claims cost are Nuclear Verdicts and Reptile Theory. Though you may be tired of hearing and discussing these concepts, it is important to keep them in mind as they have created obstacles for your insurance broker, insurance carrier and most importantly, your business. With the exploding costs of claim settlements there is no surprise that commercial auto has been directly impacted. Claims professionals have been more prepared right out of the gate to combat nuclear verdicts or reptile theory.

Drivers and operators

No insurance line has been hit harder than the commercial auto sector, and your operators greatly impact this. The life blood of any operation, they have the distinct responsibility of operating equipment and keeping projects running not only efficiently, but as safe as possible. Though your employees know the importance of their role, distracted driving is not an obsolete problem. There were over 300,000 thousand people who were injured in car accidents that involved distracted drivers, according to The National Highway Traffic Safety Administration in 2021. Distracted driving can manifest itself into three distinct areas:

Visual Distractions: Anything that takes drivers’ eyes off the road.

Physical/Manual Distractions: Anything where the driver must remove their hands off the wheel.

Mental/Cognitive Distractions: Anything that keeps the mind from concentrating on operating the vehicle.

Another factor impacting the insurance market is the availability of quality drivers. While employment in the transportation and warehousing sector rose 8.2% from 2021 to 2022 with 6.7 million people employed, the gap has not been filled. Experts in the transportation industry have estimated that over 1.2M new drivers need to be hired over the next 10 years to keep up with demand.

These factors contribute to a hard insurance market leading to an insurance capacity problem. As the cost of claims increases, the capacity for insurance decreases as it is harder for insurance carriers to remain solvent. Specialized niches, such as the crane, rigging and specialized carriers’ industry, already have limited options for operators and the strain on the insurance industry creates slimmer choices. Limited capacity within the insurance market, especially for specialized niches, only heightens the market’s volatility and makes finding the right carrier and policy much more difficult for your agent.

Next steps

Now, no need to press the panic button. While some elements remain beyond your control, there are strategic measures that you can take to help mitigate these factors directly within your organization and make yourself a better risk.

Instituting a robust safety plan can mitigate several risks by holding operators accountable, reducing distracted driving, and positively impacting employee retention, engagement, productivity, and recruitment efforts. If your insurance carrier has a loss control department, make sure to use them to your advantage. They are there to be a guide on best practices, not a hinderance to your operation.

Embracing technology can help you build a strong safety culture within your organization. Automated Event Recorders (AERs) and telematics are two of the most prevalent technologies available today. Both help promote accountability, produce coaching opportunities and utilize data to help settle claims before they reach astronomical levels. Within the crane, rigging and specialized carriers’ industry there could be difficulties effectively adapting new technologies for various reasons. Here are some tips to help smoothly integrate technology into your organization:

■ Give consistent and extensive communication to help operators understand the how, why, and when about the technology.

■ Have examples of how technology can have a positive impact on your operation to help drivers/operators understand the benefits and grow in their confidence of the technology. Explain that technology is not replacing the experience and expertise of your drivers/operators, but it is there to enhance it and make everyone better.

Choosing your carrier

One of the biggest differences between feeling the effects of a turbulent insurance market or having a smooth ride is choosing the right insurance carrier. Keep these in mind the next time you and your agent are considering your options:

Communication: Stay engaged throughout your policy year with all your insurance representatives.

Stability: Choosing an insurance carrier who is financially strong will give you peace of mind during tough times.

Resources: A strong insurance carrier has numerous resources to help you build a better program – take advantage of them all.

Ask Questions: Use questions to gain a better understanding of your carrier and your own policy to make sure it is the correct fit for your business.

Build Relationships: It is important to know the people who will be supporting you on some of your worst days.

Seek Out a Specialist: Working with insurance professionals (both your agent and carrier) who specialize in your industry is vital to your success as they have extensive experience.

While uncontrollable forces within the market persist, proactive measures within your control will help you weather the storm. As the industry continues to evolve in these uncertain times, adaptability and strategic decision-making will be critical in securing optimal coverage and effectively managing risks.

THE AUTHOR

Lauren Fronczek is AVP of specialty transportation for National Interstate Insurance Company based in Richfield, OH. National Interstate Insurance is rated “A+” (Superior) by A.M. Best.

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