Risk Management
Could There Be A Market Change In the New Millennium?
By Roger Beery
For as long as I have been writing this column, dealers have had an insurance buyers market. You've seen articles entitled "How low will you go?" and the like. Well finally (I don't mean this in a good way) the insurance market is giving us a few signs that it may be tightening. Now I'm not talking about a return to the insurance horror stories of the mid 1980s, but something akin to what my stockbroker would call a correction. Although I did not think this soft market needed to be corrected, most insurers do.
What are we seeing? The players last year that drove prices down are raising them. Of course, it would have been hard to keep prices at that level but this is the first time in a long time some insurance company has not been writing business at any price for the sake of growth.
More insurers are "loss underwriting." This means that your premiums are now being more directly related to your losses. For some, this means that you may get a substantial price increase because of losses two or three years ago. For many carriers "loss underwriting" is a new way for them to conduct business and big premium swings can be the result. Even those dealers with steady losses may see premium increases as the desired loss ratio for the insurer drops lower. It may be that under last year's competitive pressures your carrier was willing to write you at a 60% loss ratio but now they want 40%. In real dollars on a $100,000 account, your premium would jump to $150,000 OUCH! It is these mid-size accounts that we see really getting hurt as they are big enough to be loss underwritten but not big enough to throw their premium clout around. It is imperative that these dealers be aggressive insurance buyers.
Even the insurers that we call "B carriers" because of inferior coverage forms are getting into the act. They use to price themselves cheaper to compensate for their coverage forms, but we are seeing less of that. The big guys in this industry have wanted to push prices up for a long time. They see this trend and try to exaggerate it by pushing their prices even higher than where the market is.
What can you do? Look at your losses. Since losses are playing a more integral part of your pricing, it pays to keep them low and more importantly, infrequent. However, you may be able to have a dramatic effect by reviewing your loss runs before renewal. Often there are errors on your runs. The most frequent errors we see are recovered vehicles that still show up as stolen and liability claims that are settled for small amounts but big reserves are left on your runs. To reduce these errors dealers should ask for explanations and the status of all open claims.
Last but not least, bid your coverage. This is the only way you can assure yourself the best coverage at the best market price. In addition, it is the only way you can be sure any premium increases are a function of the market instead of an overzealous underwriter.
As for this correction, it may be like the stock market. By the time you read this (60 days from when I wrote it) it may all be over and the insurance market will hit new lows-one can only hope.
Roger Beery is President of Austin Consulting Group Inc., a firm specializing in dealer insurance consultation. rbeery@dealeronline.com
