How the Insurance Marketplace Can Affect Your Insurance Premiums
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I’ve been in the insurance industry since 1985 in some form or fashion. When I look back on my career, I’m always amazed at how diverse this industry can be.
In the insurance industry, as in any other career field, I have to stay on top of the latest and greatest news. It can be overwhelming to separate news from speculation, but it’s important to my clients and my business that I know what is going on at all times.
So, this is my attempt to give you an overview of what has been on my mind lately. I hope it will be as enlightening for you as it has been for me to witness how certain elements of the industry unfold.
Natural Disasters and the Insurance Industry’s Response
I’m hard-pressed to say what area of the world has not been affected recently by some terrible disaster, as tornadoes, earthquakes, wildfires, and tsunamis have hit across the United States, Japan, Haiti, and beyond. I have seen some reports from commercial property and casualty analysts predicting that the string of natural disasters in 2011 might create insurance capacity restrictions, which, in turn, could increase insurance rates. However, this remains on the side of speculation.
Other pundits are predicting the opposite, claiming the property and casualty (auto, home, business) insurance industry is experiencing the longest soft market in history.
What Is a Soft Market?
A soft market is a term used to determine the state of the insurance marketplace. Typically, consumers don’t really relate to this term; however, a soft market does benefit consumers, as it is a time when rates are considered to be extremely low. Due to competitive pressures, underwriters try not to risk losing too much business and therefore relax their underwriting standards. They may be willing to consider customers with less-than-favorable loss histories and credit scores.
The bottom line in this market is capacity and surplus. What kind of insurance is needed? Who is applying for insurance? What kind of losses, claims, and earnings is the insurance industry seeing?
Why Consumers Should Care about the Insurance Industry
Consumers will see the health of the insurance industry directly reflected in their premiums. You don’t have to read every newsletter or subscribe to insurance journals like I do, but it’s worth paying attention to the news and asking your insurance agent about the marketplace on occasion.
A potential hardening of the market could be expected by 2012, which means you might see an increase in insurance rates. However, other pundits are predicting that 2012 will be “more of the same,” which means competition among carriers would persist and pricing will remain competitive.
The speculation continues, but as I keep an eye on the insurance market changes, my advice is to talk to your insurance agent. Do a periodic review to make sure you have the best coverage for your needs and make sure that you’re receiving competitive premium pricing, no matter what the market is doing.
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