With 2020 now a full quarter behind us, we are well into 2021. While there are many reasons to be thankful for the New Year, the insurance world still looks like 2020 in many ways. The commercial insurance market continues to be very challenging, with significant increases on nearly all lines of insurance. The COVID-19 pandemic has presented an entirely new set of challenges for insurers, who are now creating considerable reserves out of fear they will be paying numerous claims.
The cargo insurance market continues to be complex, as well. Capacity is becoming increasingly tighter. This means that the markets are more selective of the business they choose to underwrite, while rates and deductibles continue to climb. Practically, all markets are adding exclusions for cyber-attacks and communicable diseases, even though the practical effects of these exclusions are largely yet to be tested.
Over the past year, we have also seen containers falling off ships at a record pace, fueling even larger reserves and claim payments by insurers. On the underwriting side, rate increases of 15% to 20% have become the new normal, and higher increases are realized where losses have occurred. This is driving increased marketing activity to ensure clients are getting the best rate that they can. Underwriters continue to be overwhelmed by the increased activity, which is leading to quoting delays. This process can be very frustrating for everyone involved.
In short, the challenges that we saw forming in the cargo insurance market at the end of 2019 picked up momentum throughout 2020 and are now the new reality for 2021. Insureds will continue to experience higher rates and more limited coverage in the foreseeable future.
How to Prepare:
It is more important than ever to ensure you are prepared and covered in the current market.
Review your coverages and limits in detail: From time to time, we come across clients who have not done a recent detailed review of their coverages and limits. Many insurers add additional coverages as window dressing when quoting a policy. In a soft market, this may not matter, but you do not want to pay for anything you are not actively using in the current environment. As for limits, we have seen shipping patterns, modes, and size of shipments change dramatically for some clients over the past year. Reviewing your international and domestic limits can be critical to ensure you are not paying for unnecessary capacity. Taking a closer look at coverages and limits can save you money and ensure your policy accurately reflects your needs.
Proactively plan for a higher deductible: Some insureds are proactively choosing to take a higher deductible as they enter their renewal to minimize rate increases. This can be a great way to save premium, and if you have a provider that can assist with recoveries on below deductible claims, you may still be able to recover on some of your below-deductible losses.
Start your renewal early: As mentioned, requests for multiple quotes have been increasing, and underwriters are extremely busy. Starting your renewal early and taking the time to review your coverage needs, limits, and deductibles is important to ensure you have time to get what you need. Make sure you completely understand your organization’s supply chain, how it may have changed, and the lanes you are currently using. These things can take some time to review, and you will want to discuss them with your broker well in advance of marketing. Your broker should be able to help you navigate all of these areas, and provide good information as to which markets may be the most desirable for your risk.
Both the overall commercial insurance market and the cargo insurance segment will continue to be challenging in 2021. With the right team and the right plan, you can get through it and ensure your organization’s needs are met. ECIB continues to help our clients review their policy needs in detail, evaluate their supply chains, build out below deductible claim programs, and set up timelines far in advance to help ensure the renewal process is as smooth as possible. The relationships we have built with underwriters and cargo insurance markets have never been more critical than they are now, and we continue to work hard to place each client with the insurer that is best suited for their needs.