2023: Will Things Change? Absolutely!
2022 seemed to flow as I predicted in this article a year ago. Since it has been a year, let me repeat a few of the key items discussed in January 2022 so that the current comments can make more sense.
The insurance industry follows a cycle from hard to soft markets. This is a global scale impacting all financial industries. During times of soft markets, there is lots of money needing to be put into play which means premiums are low, commissions are high and underwriting and terms/conditions are very liberal. The end of 2019 began the swing from soft to a hard market, which means there is less capacity (money) thus the need for better underwriting profits. Better underwriting profits usually mean higher premiums, lower commissions (or both) and more conservative underwriting.
The admitted carriers do not see these swings since their rates and forms are filed and “locked-in.” However, their reinsurance may change which means refilling of rates and forms will be necessary in the near future.
As a Lloyd’s Coverholder and a Lloyd’s Broker our markets are directly affected by the changes in the global markets. Producers who have done business with us for years were perplexed as to why the premiums changed so much as well as why the underwriting appeared to get very conservative! Remember, this is not a Petersen International issue, nor a Lloyd’s issue, but a global insurance market issue!
2022 we saw more stability than we had seen in 2020 and 2021. Markets have started getting a bit more bold again (slowly, but definitely more so). Like real estate, we have a new norm as to commissions and premiums for a while.
Will these change? Absolutely! They always do, but when and how much remains to be seen!
2022 we also saw many producers who sell Lloyd’s try and “Commoditize” the sale. Many producers are aware of several sources for accessing Lloyd’s coverages. They have also become aware that since Lloyd’s is a market, a proposal from one Coverholder is not necessarily the same as another. As such, these commodity driven producers try to spreadsheet excess and special risk coverages.
These producers have forgotten what the special risk markets are. A quick background is in order here:
Specialty disability plans are written on a surplus lines basis. In short, that means that access to these plans come only after the traditional/admitted disability writers can’t write such coverage. This is usually in the area of higher limits, difficult occupations (entertainers, athletes, pilots, etc.) and/or significant health issues. These specialty plans are custom designed for a specific risk! As such, a spreadsheet approach can be difficult as each case is custom made.
In 2022 we began “re-educating” producers that they need to get back to how disability producers used to review each policy as to what they really offer.
2022 we also saw a rise in electronic selling. Many producers and a few carriers have been trying to create platforms to make selling disability “easy” by offering a platform of carriers.
2022 saw a spike in inflation. The cost of living has slowed down many sales of disability insurance as producers are finding people reluctant to buy coverage perceived to “not be needed!”
So what do we see for 2023?
- Producers getting back to comparing plans and terms and conditions and realizing that there are differences and cost is not always the driving factor–solving the risk problem is!
- While there is always a good attempt (and good intentions) to make selling disability insurance quicker and easier by trying to do it online, most producers realize that disability insurance still must be sold and not just offered!
- As inflation continues (same or increasing doesn’t matter), individual disability sales may slow some more. However, business disability markets will continue to always have sales as the need to protect a business will still be justified easily. (Note on this: Funny how people will protect a business first then look at protecting the one thing that makes all other things possible…the income!)
- 2022 was a time for many to reflect on what has worked, what is working, and what needs to be done to make moving forward operational–2023 we will start to implement some plans which move this market forward. While underwriting will remain more conservative than five years ago, there are newer tools that are making the process more streamlined and easier, which should further create easier distribution and more profitability for the carriers.
- The need for disability product sales remains unchanged. There is always an “excuse” not to sell, but there is never a valid reason to not sell disability insurance!