By Jamie Lewis, Account Executive
In 2012 we began to notice a trend in some of our environmental markets wanting to increase rates in their upcoming renewals. While this certainly did not apply to all carriers or all policies, we did notice slight changes of 3-5% from some carriers. Other markets took a more customized approach, carefully evaluating each policy, and charging an appropriate rate increase for the more under-priced risks. It was clear towards the end of 2011 and beginning of 2012 that the key to managing any rate increases would be to set client expectations early. Discussing upcoming renewals with underwriters 60-90 days in advance and then sharing the carrier’s plan with the agent helped prevent premium surprises when formal renewal terms were presented. Emphasizing the value in maintaining coverage with a highly rated carrier, as well as highlighting key coverage parts, helped agents explain increases in rates to their insureds. Overall, in 2012 we were able to maintain 82.46% of our renewal book at 92.41% of the premium with this approach.
As the year 2012 came to a close and we started looking toward 2013, we were still working through the growing pains of a hardening market and how this would impact renewals. For example, on a recent account, a contractor expected to have a 76% growth for the next fiscal year, which was a substantial increase in their revenue projection from the prior year. Through early conversations with the producer, all parties were well aware that while the insured’s premium would certainly increase because of the dramatic increase in their exposure. We would also see an increase in the rate on both the package General Liability/Contractors Pollution Liability/Professional and Follow-Form Excess policies. Even with this understanding we were asked to have at least one other carrier offer an option for comparison.
Both the renewal terms from the incumbent carrier and an option from an alternative market were presented within a month of the policy expiration date. As expected, we did receive a rate increase from the expiring carrier, an average of 5% between the two lines. Surprisingly, the other market offered an option that was 29% less than the renewal terms. While the premium was certainly appealing, a closer examination of the option revealed a few things: 1) In order to offer such a competitive premium, the General Liability would have to be separated from the CPL/Professional, 2) The policy would be written on an auditable basis, 3) The Excess policy could follow-form the GL, but not the CPL/Professional, and 4) The AM Best Rating of the optional carrier was not as high as the incumbent. The insured was left to decide if they would accept the increase in their renewal premium (and rate) due to the increase in their exposure, or take the risk in separating the GL from the CPL/Professional lines and potentially cut some key coverage parts.
After a thorough review of the options and discussion with the agent, the insured decided to stay with the incumbent carrier. They understood the value in having a packaged policy and an Excess for all lines of coverage. They also understood the risks in changing carriers at renewal. While they would be paying more premium this year, they understood why the rate and premium had increased. The insured was happy with the service they were receiving and wanted to maintain the relationship that had been established years before. By setting the expectations early and explaining what the insured would actually be purchasing, we were able to retain this renewal for the carrier, the agent, and our own office.