By Patrick Manning, Senior Account Executive
It’s a practice as old as insurance itself. A new or existing carrier decides that they want to enter into a new market. In order to be as effective as possible, they differentiate themselves by coming in with rates that are substantially lower than the segment’s average. This always seems wonderful to brokers and agents because they can offer coverage at a much lower price. What’s not to like about this situation? But then the losses start coming in. In order for the carrier to overcome the loss ratio, they write more business at the same or even lower rates. As the losses continue to mount, suddenly the carrier finds that they didn’t really understand the market they were entering and that they have to exit immediately or else they will find themselves on the wrong end of a financial stability rating review.
Agents see it happen all the time and yet constantly find themselves falling into the same routine of going after the cheapest possible quote rather than building on the relationships of the existing markets that have so much more to offer insureds than just simply being cheap. These advantages include features like loss control services, emergency response contacts, and the knowledge that if something does happen, the carrier is there to take care of the insured.
One of the biggest problems we see is when a newcomer to the environmental or energy market starts to feel the pain of their loss ratio, they start to non-renew any account that has suffered any loss, regardless of details of the loss. Another big problem we have seen is that after a year or two of writing a certain class of business, the carrier suddenly realizes the complexity of the accounts they are writing and will non-renew all insureds of that class due to a sudden change in underwriting philosophy. Of course the most concerning problem is when the carrier’s loss ratio is too high, and since they weren’t writing to an underwriting profit, they have to close their doors.
The problem with any one of these possible outcomes is that the broker, and ultimately the agent, end up being responsible for the situation, trying to explain to the insured what happened and then justifying why the insurance was written with a market that didn’t fully understand what the insured’s operations and exposures were in the first place. The insured is then presented with the sticker shock of a new quote/premium that is more in line with the insured’s work, which can cause further friction and could potentially damage the agent-insured relationship.
There may be some insureds that are happy to bounce around from market to market with no history with any one carrier, but for established clients, a partnership with a strong carrier who is reputable in the industry that the insured operates in is always preferred. At Beacon Hill Associates we strive to maintain relationships with the top markets in the environmental and energy fields; markets that are here to do more than just satisfy a certificate holder. All of our carrier partners have an A.M Best rating of A or better and truly understand what it is that the insureds do, potential exposures, and the appropriate coverage.
For more information about exposures, environmental/energy products, applications, and more, contact us.