This Week in Risk Management — January Issue #1

Insurance Gains Ground Playing Catch-Up With Technology

If the insurance world were a house, it would be the Fairbanks House in Massachusetts. This place was built roughly 1637 and probably doesn’t have Alexa managing the ambiance — but that’s changing. The Fairbanks House has gone digital, with 3D virtual tours and such. And the insurance market has happily (and finally) married some attractive technology.

As one of the most antiquated processes, underwriters now use telematics and other aggregates of data to provide dynamic and personalized underwriting. Insurance is even being embedded in transactions. For example, insurance is sometimes loaded when you buy a vehicle online. The claims process has become more technologically advanced, allowing policyholders to upload photos or information immediately on digital platforms. We think you’ll agree when we say this transformation is a step in the right direction.

Forget Struggling In 2022, Brokerages Join Forces Instead

It’s safe to say that most of the world is over the idea of struggling through each day, month, or even year. The pandemic has depleted our patience. Insurance brokers feel the same way, and they’re doing something about it. Insurance brokerages are consolidating, and experts think a wave of IPOs will follow. Here’s why.

Merger and acquisition activity has skyrocketed in this space recently and won’t likely stop anytime soon. The overall capital markets took a hit early in the pandemic, but many brokerages proved to be agile. For businesses considering going public, brokerage consolidation could be beneficial. Stronger financial backing means a higher potential for profitability.

Mark Friedman of PwC shares his insights, “I think it’s safe to say we won’t see many mega-deals in the insurance brokerage space [in 2022], but I think the consolidation of mid-tier and smaller brokerages will absolutely continue. What could be really interesting in the brokerage distribution space is we could see a wave of IPO [initial public offering] activity.”

The Pandemic Trashed Global Supply Chains — Now What?

As Bloomberg reports, global supply chains are a mess. Ports worldwide came to a screeching halt when COVID-19 hit. Strangely enough, the global supply chain is still not out of that rut. We see shortages everywhere — grocery stores, gas stations, toy shops, etc. — driving prices higher.

Here’s the kicker: businesses enjoyed their global network just over a year ago. In search of cheaper goods and services, an American company could easily benefit from an overseas supplier. Now, that same supplier sits in a port for two weeks to unload.

Experts predict that it will take a handful of new measures to dig the global supply chain out of the muck. Ports will need to remain open 24/7 to prevent any further logjams, for starters. Companies will need to pay truckers more and invest in more equipment to keep things moving along. Lastly, we will all need to endure higher prices until this mess is cleaned up — and plan well in advance for everything.

What Noodles and the D&O Insurance Market Have In Common

Leave it to us to save the best story for last — and boy did we! As you might know, the D&O insurance market has been on a downslope, or in a hardening market, for a few years. However, some experts say that D&O liability rates are flattening. Here’s what Jeff Hirsch, EVP of Scale Underwriting, an MSI company, has to say about it.

“The euphemisms around the state of the market — ‘hard, soft, or flat’ — can also be used to describe the type of noodle one orders with their ramen. And, it all depends on who the cook is at the end of the day. As it relates to private D&O rates for 2022, it depends on who you ask. An underwriting shop still looking to recover for losses paid during the last market downturn wants to convince its customers that the market remains ‘hard’ — seller side economics.

If you are entering this highly competitive space, you’re looking to take business away from incumbents. So, you would describe the market as ‘softening.’ It’s ‘flat’ if you want to keep your renewal book options open and make a splash into new business.

We think the market is continuing to evolve. There are good premium opportunities tied to class and industry. At the same time, some brokers should be able to make good cases for flat or only slight premium increases, depending on the client and how it has fared through the pandemic and economic downturn.

Your underwriter should be providing options via attachment points and coverage enhancements or limitations to find the ‘right price for the right coverage.’ In other words, for disciplined underwriting, nothing has really changed that much.”

As always, we’d be thrilled to hear your comments and opinions.

Until next time…