Property Insurance policyholders have seen ongoing price increases and modifications to coverage terms / deductibles and premiums increasing significantly since the property insurance market began hardening prior to the onset of-COVID-19
Almost universally, insurers are utilizing more stringent underwriting guidelines and becoming more selective about the type of accounts they are willing to insure. The industry is extending rates and terms by each account’s specific profile and actively looking at the overall quality of each submission and the risk associated with it.
In this environment, developing a plan to ensure the quality of the data used for your submission has a direct correlation to your total cost of risk. Like many of us, much of the insurance underwriting community is working remotely at least part of the time. Providing a complete, well organized submission, in the required format speaks volumes to the underwriters who ultimately determines your organizations fate from a cost and terms perspective. Now more than ever the more comprehensive picture you are able to provide of your organization from a risk standpoint the better off you will fare with both an incumbent or prospective insurer.
Accurate data can be key.
Properly representing your risk (and risk management policies) to the carrier will directly affect the rates and terms offered. Missing information from a submission was tolerated or incorrected now can have a significant impact on your cost of risk. For example, depending on the market where a building is located, the market value of a property and the replacement cost can be very different. If your replacement value is inflated (e.g., your lender used market value vs actual cost to replace), you may be grossly over insured to begin with. In this difficult market, taking steps to secure coverage that achieves precise allocation of premium dollars is well worth the effort.
Errors of omission can also be costly. Building updates that reduce probable maximum loss (PML) can’t be factored in by the underwriter if they are not clearly reported. The age of items such as electrical, roofing and heating and cooling also play into how the carrier rates risk. Something as simple as reporting that building and systems maintenance occurs on a set schedule reflects minimization of risk to the carrier. Furthermore with the increase occurrence of natural disasters, having secondary exposure data for your properties can really help an underwriter understand the risk associated with your property. Not having this information can often lead to worst case assumptions by modeling and underwriting tools which can negatively impact your cost and terms from your insurer.
Simply put – the more prepared you are to provide a complete profile, the better your outcome. Ask for and review your “statement of value” (square footage, distance to fire hydrant, etc.). This is your property’s “Carfax report.” You will want to correct any errors and challenge any misrepresentations.
In prior years, an insurer who has written your policies for a number of years may have accepted a less-than-perfect submission. Maybe you neglected to include the total square footage or left other requested details unanswered. In this market, insurers are automatically declining risks they had previously covered.
In our current risk environment, proper guidance and representation is a value in itself. Depend on your broker’s expertise and guidance. They will know what data you need to collect and what alternatives are available to you. A property-based valuation can provide key information to support a true PML. You may benefit by engaging multiple carriers. Carriers may be looking at different detail when analyzing terms and coverage and may require different types of information. Knowing what to provide to which carriers pays dividends.
COVID created an even more complex risk landscape.
The range, probability and calculation of risk required in 2021 could not have been imagined just 18 months ago. COVID-19 has changed the global risk landscape. Risks have been reprioritized and new risks have emerged. Management and insurers alike are taking an enterprise-level look at risk, assessing compliance risks, financial liquidity, third-party vulnerabilities, litigation threats, workplace operations, extreme weather events, pandemics and more.
In this environment, you will want to incorporate these additional coverages into your insurance profile review. An experienced broker can assist you at a management and planning level to take a broader look at your total risk and help you manage your total cost of risk.
- Workers’ Compensation – The pandemic-produced expansion of a remote workforce has expanded workers’ compensation rates and considerations to include offsite work-related injury, clocking in and out, and wellness programs.
- Directors & Officers Insurance – Social media draws public attention to corporate missteps like never before. There’s a bullseye on business executives whose management decisions might cause the company and investors financial harm. D&O insurance is a must.
- Risk Transfer Agreements – Third-party services, already commonplace for business services like payroll, now commonly include vendor management services, building maintenance, industry-specific core applications, AI data analytics and, in today’s ultra-connected living, cyber and network management services. Risk transfer agreements with third-party vendors are essential to ensure you are held harmless.
- Business Interruption – This coverage has been in the spotlight since the pandemic response closed businesses and then limited capacity for extended periods of time. Most policies stipulate coverage is triggered by “physical damage,” meeting the need for businesses impacted by storms, flooding or fire, for example, but resulting in claims denials for lost business due to a pandemic. Only Florida and North Carolina have had some court action in favor of the plaintiff.
- Climate Change – There is no doubt that weather events are becoming more severe and more frequent. Climate change has become a factor. Coverage may be difficult to secure in coastal locations, for example.
- Cyber Liability – With much or at least some of the workforce working remotely, you want to be sure your cyber liability insurance will respond to security and privacy infiltrations within a remote desktop environment.
Build risk management attitude and strategies.
These suggestions are practical, indeed prudent, across the board.
- If you have active risk management programs in place, continue to ensure all levels of your business have bought in, from the president/owner to the new hire. If no programs are in place, work with your risk advisor or broker to create and implement risk management and loss control programs (e.g., safety manuals, employee handbooks, hiring guidelines).
- Review open losses and loss control practices. In response to our current litigious business environment, insurance carriers are evaluating sufficiency of risk management practices, policies and procedures in place to help mitigate and minimize risk when determining rates.
- When entering into contracts with other parties be sure you understand how much of their risk you are assuming and what your responsibilities are. Your risk advisor can provide experienced guidance and advice with respect to contractual risk transfer.
- Consider purchasing or increasing the limits of an umbrella liability policy to ensure sufficient protection should you find yourself in a catastrophic suit. High-limit umbrella coverage may require multiple layers of coverage with different carriers; your broker should be able to manage that process for you.
- Make two lists – one with the top five or 10 business losses you could suffer that have the greatest chance of happening and another with the losses that could cause the greatest damage to your business. Review these lists with your risk manager or insurance broker to ensure you have the coverage in place to respond to all.
Additional Related Resources
Your team
Be sure to tune into Episode 12 of CBIZ’s What’s Next? podcast - The Rising Cost of Insurance & Insurable Values. Guests Greg Cryan of the Property & Casualty Insurance team and Ron Acebal of our Tangible Asset Valuation team provide insights on what businesses can do to manage the hardening commercial insurance market. If you have questions about your risk profile or your current coverage, don’t hesitate to connect with the CBIZ Insurance Services Team, your CBIZ advisor, connect with Greg or Ron directly. They will help you develop strategies to mitigate exposure, build effective governance and assess risk tolerance.