No one likes to deal with insurance. Whether you’re trying to obtain new quotes prior to renewal, or you are filing a claim, insurance can be a confusing and frustrating matter.
For the times when your shopping for insurance, being either in a hard or soft market is something that you wouldn’t be aware of. Brokers should clarify this when you start
shopping, giving you a profile of what the insurance market is doing and how it will affect you. Unfortunately, many brokers do not do this and instead are more concerned with obtaining information and starting the shopping process immediately without discussing what the client’s needs are and what to expect.
Currently, the marine insurance market is quite hard. But, what do we mean when we say it’s ‘hard’?
Hard vs Soft Markets
Like many financial markets, the insurance market is cyclical. And, with it, the laws of supply and demand affect insurance premiums.
Depending on how the insurance industry performs year after year, the results determine how much risk insurance companies take and which types of accounts they will take on (underwrite). Performance is broken down into how many claims the industry has paid out, how much investment income companies have received and reinsurance costs.
Simply speaking, when performance and income has been poor and reinsurance costs are high, this results usually in Hard Market conditions. Insurance companies become pickier in accounts they will insure; they will be more wary of certain areas they will write insurance in and premium rates increase. Stingier terms are offered long with higher deductibles. Overall, there are less insurance companies willing to insure accounts.
Conversely, when performance and income are positive and reinsurance costs are low, this usually results in a Soft Market. Insurance companies are not as picky with what they will insure and more of them are willing to compete for accounts; thus, driving down rates. Broader terms and lower deductibles are offered.
Depending on which market the industry is experiencing has huge implications for your insurance shopping. If the market is Hard, it will be more difficult to get insurance; numerous declinations will be received and what quotes you do receive will be expensive with stricter terms. If it’s Soft, you should receive numerous quotes from different companies with broad terms, favorable deductibles and low premiums.
As of this blog entry, the market is quite Hard. You can read more about the current state of the marine insurance industry in an upcoming blog entry.
Shopping Guidelines
So, in a Hard market, how do you go about getting the best quote available?
First off, make certain you have a qualified and experienced insurance broker working with you. If the broker doesn’t take time to discuss with you what you’re looking for and what to expect from the insurance market, that may not be the broker you want.
Next, make sure you provide as much information as you can to your broker. Fully complete and sign any applications he/she sends you. Provide survey or appraisal reports, captain’s resumes, a briefing of what your hiring practices are and if you implement any pre-employment or safety procedures or security training. If you have an Employment Manual, send a copy to your broker.
If you’ve had claims or even uninsured accidents, disclose this to your broker. Let them know when, where and how they occurred; along with how much it cost to settle the matter. If you currently have insurance, ask your current insurance company for a 5 Year Loss Run. This statement will outline the claims you’ve had over the last 5 years, how much they cost to settle and whether they are still open or have been closed.
After submitting the requested documents to your broker, all you need to do is wait. Your broker will proceed to compile the information into a formal submission and send this to various insurance companies with his/her comments about your organization and what you are looking for. Should thy have questions, answer them to the best of your ability.
Reviewing Quotes
Once your broker has some quotes for review, go through them. Your broker may send an email summing them all up. He/she may prefer to send you all the actual quotes and discuss them with you on the phone. Above all else, take a few moments to review them yourself. You may have questions you need to understand further.
In a Hard Market, expect to be declined by a few insurance companies. Your broker may tell you about it, they may not. In any case, you have a right to know, if you like. Ask if you’ve been declined and why. The answers will give you an idea just how insurance companies view accounts like yours.
Depending on your company’s operations, you may only receive one quote with all other insurance companies declining. That can be common in Hard Markets. If that’s the case, you really don’t have much of a choice. And it may be a very expensive quote with strict coverage terms. But you can do things to lower your premium. You should speak to your broker about ways to do this if the cost is a concern.
If you have multiple quotes, discuss with your broker which is the better option. Don’t go by price alone. The lowest cost policy is not necessarily the best one. There could be reasons it’s the lowest cost. Your broker should help explain why.
Reminders and Final Thoughts
During Hard Markets, it can be more difficult to obtain competitively priced and broad coverage insurance policies when insurance companies are being more reserved in what they insure. But with diligence, a good broker and being open about your business, this will give you the best chance to obtain the best policy for your business.
Remember two key points when shopping for insurance in a Hard Market:
- Be honest with your broker. Honest and full disclosure of your operations, including claims, will provide the broadest and best picture of your account. Insurance companies are conservative when they look at accounts for insurance. If they don’t have a clear picture of your operation and have more questions than they should, they might either decline quoting the insurance or quote it with high premiums.
- Be realistic in your expectations for insurance. If you have a small shipyard or marina, you should not expect a policy with extremely broad coverage for premiums less than $10,000 annually. Likewise, a 40-year-old ship and that needs a lot of upkeep and is low valued will see a stricter policy with higher premiums, too. Discuss with your broker where they think the premium will be and what you should expect in coverage terms.
Overall, it doesn’t have to be difficult to get insurance in a Hard Market. As long as you know what to expect and have a good understanding with your broker, you should be able to obtain insurance when others may be having more trouble. Feel free to contact us to help you with your insurance needs today. We'd be glad to help walk you through the insurance quoting process and show you why Lightship Maritime is a better partner during a Hard market.