AUG. 11, 2021
The insurance industry is cyclical in nature, ebbing and flowing between hard and soft markets. While insurance professionals and buyers have come to expect these patterns, we are entering a new and increasingly uncertain era. More than ever before, turbulence in the insurance space, national and global trends, and an ever-evolving and complex risk landscape have created a challenging market, the likes of which the industry hasn’t seen in 20 years.
Concerns related to COVID-19, cybersecurity, labor trends, social movements and extreme weather patterns have all created a perfect storm, and businesses are experiencing significant challenges and double-digit insurance rate increases.
Now more than ever, it is vital for all types of middle market businesses to understand their exposures and ask themselves some tough questions. What exposures can they control and manage? Are they taking the appropriate steps to reduce their risks wherever possible? Do they have the appropriate insurance coverages in place? Above all, businesses will need to be proactive in their risk management efforts if they are to address the challenges of the current landscape head-on. That’s where middle-market-focused agents such as you can help. This article will examine some of the most significant trends impacting the middle market and ways businesses can — and should — bolster their risk management efforts in this era of uncertainty and a hardening market.
Attracting and retaining talent
Attracting and retaining talent is a top priority for many businesses. Given the effect that the COVID-19 pandemic has had on the job market, one might imagine this task is easier than ever. Unfortunately, that’s far from the truth. While there might be more candidates than usual, attracting quality talent and retaining top performers remains a struggle, worsened by COVID-19 and its effects on the workplace.
As of late April 2021, there were over 9 million open jobs in the U.S. — a record high.1 Furthermore, between March 2020 and March 2021, unemployment rates increased in 40 states and the District of Columbia.2 As a result, the employment market has changed swiftly. Despite the current historically high unemployment rates, many organizations are now struggling to find qualified applicants for their open positions.
Even though companies are looking to fill positions immediately, job seekers continue to hold back from pursuing work. This may be because they are looking for better positions than before the pandemic, lacking affordable child care or remaining concerned about contracting COVID-19.3
Still, even when employers receive quality applicants, they encounter new challenges such as meeting the specific needs of highly qualified candidates, who remain in high demand. According to the Society for Human Resource Management, job seekers in the post-coronavirus employment market are looking for4:
With this in mind, employers should consider how their employer brand resonates with the current employment market and how post-coronavirus plans could include updates to recruiting methods.
Organizations should also focus on the importance of strong workforce training and safety programs. While these programs are always important, they are crucial right now to help ensure the safety and retention of the workforce due to the likelihood of bringing in lower-skilled workers, higher workloads due to staffing and demand challenges, and potential changes in operations to align with demands.
COVID-19 reopening efforts
As more and more individuals get vaccinated for COVID-19, the return to normalcy is promising. As of July 2021, over 4.17 billion doses of the vaccine had been administered globally5. This resulted in many states beginning to loosen restrictions for businesses and residents alike6. However, with the delta variant currently on the rise, organizations need to continue doing their due diligence to protect their customers and employees before going back to pre-pandemic operations. The following are some best practices to keep in mind:
- Review guidance from state and local governments — The COVID-19 pandemic impacts states and regions in different ways. Just because a business is allowed to reopen in one region of the country doesn’t automatically mean all other operations will be allowed to resume as well. As such, it’s critical to understand and review all relevant state and local orders to determine whether and when a business is allowed to reopen.
- Understand the risks — If and when the government allows all businesses to reopen, that doesn’t necessarily mean COVID-19 is no longer a threat to operations. What’s more, some businesses may have greater COVID-19 exposures than others, underscoring the importance of performing a thorough risk assessment before reopening. Before conducting a risk assessment, it’s essential to review guidance from the Occupational Safety and Health Administration (OSHA), state and local agencies, industry associations and your local health department.
More than ever before, the world is increasingly interconnected. In fact, organizations have seen exponential growth in recent years, using computer networks and the internet to harness data, create efficiencies and reach new markets.
While the advent of this new technology has allowed organizations to unlock their potential in unimaginable ways, it has also created new and unforeseen threats that both agents and their business-owner clients need to be aware of if they are to reduce their risk of a cyberattack. This is especially important when you consider that cybercrime is big business, and its perpetrators include sophisticated actors such as organized crime syndicates and nation-states.
As organizations become increasingly reliant on computer systems and data, these malicious actors have a plethora of targets to choose from. Compounding the issue, just one cyberattack has the potential to affect organizations for years, particularly financially. In fact, according to recent research from IBM and the Ponemon Institute, the average cost of a data breach in the United States jumped to $8.64 million in 2020, representing an increase of 5.6% since 20197. In addition, the threat of cyberattacks is a top concern for business owners. According to Nationwide’s own 2020 survey data, 70% of middle-market business owners are concerned about a cyberattack in the future8.
In 2021, both agents and business clients will need to focus on potential threats created by remote work, particularly if they allow their employees to work from home even after the COVID-19 pandemic has ended. Specifically, ransomware is a top concern for 2021. Ransomware is a type of malware that gains access to and encrypts a victim’s systems, devices or files. Once ransomware has infected a network, it locks victims out of their own systems, forcing them to pay a ransom to regain access to their data or systems. If the demands are not met, the encrypted data may be deleted.
In recent years, the number of ransomware attacks against businesses has increased significantly. Emsisoft, a security firm that helps companies hit by ransomware, reports that 205,280 organizations were affected by ransomware attacks in 2019 — a 41% increase from 2018 data. These attacks are expensive, with the average cost of an attack being $732,520 when the ransom was not paid and $1,448,458 if the ransom was paid.10
Regardless of the industry they operate in, cyberthreats loom large for organizations of all kinds. This heightened risk is especially the case for small- and middle-market firms who often lack the expertise or resources needed to protect themselves from advanced cyberattacks. As cyberattacks continue to evolve, it’s crucial that organizations understand their cyber exposures and take the necessary steps to protect their assets, customers and bottom lines.
In 2020, a number of social movements were brought back to the forefront. For one, the Black Lives Matter movement, which was founded in 2013, saw a resurgence as protests and civil unrest centered around racial injustice exploded throughout the nation. Additionally, the #MeToo movement, an anti-sexual harassment campaign, continued to make headlines, particularly as the public pushed for accountability among those in positions of power.
For employers, these movements underscore the importance of creating a welcoming environment —one free of discrimination, harassment or other forms of unfair treatment. Organizations should consider how to best promote a safe, positive, inclusive and diverse workplace. Doing so not only shows the business is taking steps to promote equality and employee safety, but it also helps prevent potential claims.
Weather patterns and natural disasters
Rapidly changing weather patterns and the increasing frequency and severity of natural disasters have profoundly affected the insurance landscape over the past decade. To understand why, look at the economic damages caused by extreme weather.
In 2020, there were more than 58,000 wildfires that plagued the West Coast11. What’s more, droughts and heat waves in the Western and Central United States contributed approximately $4.5 billion in damages12. Additionally, hundreds of tornadoes wreaked havoc across 15 Southeastern and Northeastern states, while hailstorms, strong winds and heavy snow totaled over $5 billion in damages throughout the Midwest.13 On the East Coast, the 2020 hurricane season resulted in a record-breaking number of storms, causing over $40 billion in damages and affecting multiple states along the Atlantic Ocean.13
According to the Insurance Information Institute, overall losses from worldwide natural catastrophes in 2020 totaled $210 billion, a 26% increase over 201913. Furthermore, the top five costliest natural catastrophes by insured losses occurred in North America, including Hurricane Laura, the California wildfires, severe storms from August to December, Hurricane Isaias and Hurricane Sally.
Given the magnitude of these losses, businesses and insurance carriers alike face an uphill battle. The truth is that weather patterns are unpredictable, and many carriers are forced to tailor insurance pricing to a policyholder’s specific risks and exposures. When it comes to commercial property insurance lines, this can lead to unfavorable pricing for firms in high-risk areas, which makes loss control efforts — such as continuity and emergency response plans — that much more important.
Preparing for uncertain times
Regardless of the state of the insurance market or the number of trends affecting it, businesses that take a proactive approach to risk mitigation have always been the most prepared for whatever is thrown at them. However, in a hardening market and uncertain times, it’s critical that organizations partner with experienced insurance agents — agents who take a consultative approach and act as their clients’ trusted financial professionals.
Loss control services are particularly important in today’s climate, and businesses must work alongside their agents to better understand their exposures and what they can do to address them. The specific strategies that companies take to manage their risks will depend largely on the industry they operate in and the exposures that are most likely to threaten their business. However, these are some general steps to consider:
- Market and insurance education — Organizations should get their leadership team up to speed on market changes and the challenges they bring, as key stakeholders need to be aware of the trends impacting their insurance and ways they can reduce that impact. For additional protection against market challenges, insurance agents can provide businesses with industry-specific strategies to reduce the potential for claims.
- Identification of exposures — Businesses need to have a deep understanding of their exposures to control loss appropriately. By partnering with qualified insurance professionals, businesses gain insight into not only what these different exposures are but also how to mitigate them through risk management techniques and insurance.
- Consultative risk management — Businesses should seek insurance partners that can provide targeted risk management guidance designed to elicit change and positively impact their loss history moving forward. However, it’s difficult for companies to proactively address risk on their own. They should partner with insurance agents and carriers possessing the loss control expertise necessary to help them address risk in meaningful ways.
- Early renewals — Starting the renewal process early can be beneficial for businesses. Not only can this help them secure affordable coverage, but it also promotes early communication with their insurance agent, reducing unwelcome surprises during the underwriting process.
In challenging times, businesses need to look for agents they can trust and insurers that will be there for them in their time of need. When it comes to securing insurance during a hard market, price matters, but so does professional service that backs the underlying insurance policy.
Learn more about loss control services by visiting mylosscontrolservices.com/. If you are an agent interested in growing your commercial book of business, please go to nationwide.com/agents.