There’s really no way to sugarcoat it.
The new year brought with it one of the toughest markets for insurers we’ve seen in decades. While this frustrating fact may leave you ready to break at least one New Year’s resolution and get yourself some chocolate ice cream to indulge in self-defeat, don’t give up just yet. If we work together as an industry and agree to align our focus on what is best for us as a whole, 2023 and the years ahead will provide a fertile environment for our industry to thrive in ways that will benefit no not only to our profit lines, but also to our employees, our customers and our communities.
It boils down to three things: attract new talentby renewing our focus on claims control and reinforcing strict underwriting.
It’s hard to remember a time when we saw so many pressures collide — inflation, social inflationsupply chain disruptions, talent shortages, reinsurance issues and, of course, the weather.
Like it or not, a significant drop in inflation is not expected. Social inflation is also not expected to change, although we are more focused on containing some of the out-of-control verdicts the industry has seen in recent years.
And this talent crunch that we’ve been talking about for nearly two decades in our industry is unlikely to correct itself this year either. That said, the market downturn could delay some retirements while others could return to work to supplement lower investment returns. But, for the most part, the demand for talent in our industry will continue to be strong as baby boomers retire and young professionals look elsewhere for what they perceive to be more lucrative, dynamic and promising fields.
But all is not gloomy. In the lumber and building materials industry, the specialized niche where my company operates, the industry continued to perform well. From a profitability standpoint, we’re in great shape, but other players in the insurance industry probably can’t say the same. That said, we don’t see a market as aggressive as in recent years.
Moreover, in this environment, even if you are lucky enough to have an underwriting profit, the market decline is likely to put enormous pressure on your surplus. Fortunately for us, mutuals have the advantage of not having to report to shareholders. We are committed and accountable only to our insured members. Therefore, we are not sensitive to the pressures of shareholder reporting which may need to see immediate results. As a member-owned mutual, we are often able to take a longer-term view when it comes to our portfolio.
What weighs mutual, especially small mutuals as well as other carriers, is the cost of reinsurance. We are experiencing a late market. Reinsurers are sitting on the sidelines waiting for the best deal before announcing their terms and conditions. They’re not buying the bottom layers anymore and that’s causing problems for small businesses. As a result, a number of small mutuals are looking for affiliate partners, discouraged by the reinsurance market.
Resolve to do better
We don’t have to sit idly by and watch our potential talent being courted in other industries. We don’t have to sit back and let avoidable claims happen. And we cannot continue, as an industry, to deviate from basic underwriting principles just to win business. If we don’t collect enough premiums to protect ourselves against the risks we insure – this is particularly critical for those of us on the high-severity side – these catastrophic claims will be devastating to us as insurers as well as for the insured. And reinsurers will continue to keep their distance.
We can play a role in a faster recovery of our own industry by focusing on the following:
1. Attract new talent: All of us in the industry need to step back and say, “What can I do to get a young person to get insurance? “We haven’t done enough to attract new talent to the industry and now the problem has been exacerbated by a national labor shortage and post-pandemic work-life balance expectations. We know young people want inspiring work and to work for companies where they feel valued and know to be focused on social good.
We need to find these people. In many cases, this means hosting students in risk management or other fields as interns.
At Pennsylvania Lumbermens Mutual Insurance Company (PLM), we work with high school students participating in a co-op program with Cristo Rey Philadelphia High School as well as interns from regional universities. We need to show these students what our industry and our companies are all about. Let them sit down with different business units, from underwriting to marketing. Let them meet the team and expose them to the company culture. Explain the financial and professional benefits of working in this field.
Also, make sure new applicants know that your company cares about their professional progress, as well as the community. At PLM, we keep our employees inspired and engaged through continuous learning incentives. Our industry is widely perceived as profit-driven, but we need to make it clear to potential candidates that ours is a business rooted in caring for others. We do this in the policies we write and in the charitable giving and volunteerism we do throughout the industry.
2. Focus on loss control: By helping our policyholders do better, we will do better. We, as an industry, need to take a more determined stance on loss control. It is our responsibility, and that of our agent and broker partners, to encourage our policyholders to take the training programs and use the risk management technology available to them.
For example, commercial auto losses continue to weigh on claims. But with the right training and tools, policyholders can take steps to reduce losses, which lowers future rates. Tools are available, such as cameras and motor vehicle reports, but too many policyholders don’t use the tools or process the information. The industry needs to take a stronger stance in insisting that policyholders view the use of these risk management tools as a basic standard of care.
Loss control extends beyond the commercial automobile. Good risk management programs are offered to policyholders by recognized authorities such as the Insurance Institute for Business and Home Security. Insurers, agents and brokers can work with their policyholders to help them understand how to build structures that can withstand the harsh weather we have experienced in recent years.
3 . Meet strict underwriting standards: We need to tighten our coverage and increase our values and align them with the right rates. While this may be fundamental, when we do, our business books and bottom line will react. For the benefit of all, insurers should review their covers and ensure that they are correct and have been carefully explained to the insured.
Stricter underwriting and accurate pricing that reflects real risk will be essential as we move forward with a focus on policyholders who adhere to appropriate risk management measures.
The new year will certainly bring its challenges, there is no doubt. We can tackle some of them as an industry by focusing on our core principles of strong underwriting and aggressive risk management. Put in place bold new initiatives to attract talent to the industry, and we’ll be set for success in 2023 and beyond.
John Smith ([email protected]) is President and Chief Executive Officer of Pennsylvania Lumbermens Mutual Insurance Company (PLM). With over 40 years of experience in the insurance industry, he has been part of PLM since 1998.
The opinions expressed here are those of the author.