Economics of Hard Insurance Markets
Sigma Risk recently provided expert testimony to an arbitration panel on the economics of hard insurance markets. The analysis was accepted by the tribunal. The gist of the testimony was as follows
1. Over the last fifty years, insurance rates, net of inflation, have decreased on average 2% per year, even allowing for the odd “hard insurance market.”
2. With four hard insurance markets over the past fifty-five years, a hard insurance market occurs, on average, every fifteen years or so.
3. Each hard market lasts an average of four to five years, and usually looks something like this:
4. the overall effect of a hard insurance market is between 50% and 150% higher insurance costs over the hard market period before returning to normal.
5. The hard insurance market that started in 2019 has, in our view, peaked.
6. There are a number of measures available to an organization to hasten the return to normal insurance rates, including a strategic review of the insurance in the form of an internal audit.
What is a Risk and Insurance Audit
A risk and insurance audit is an assessment of the insurable corporate risks and an evaluation and the current insurance program for those risks, including insurance limits and coverage (and any gaps or redundancies therein). The audit also examines insurance brokerage services, loss experience, benchmarking of insurance rates, an outline of self insurance opportunities (and their cost/risk profile) and, importantly, examines Value-for-Money. Using the audit as a foundation, strategies for improvement in cost, coverage, quality or service are listed and analyzed , along with an opinion on their risk-based benefit-cost.
As Certified Internal Auditors, we faithfully loyally follow the principles, protocols and practices of the Institute of Internal Auditors in our risk and insurance audits.
Sigma Risk has performed these compliance and strategic reviews for more than a hundred and fifty corporate clients from virtually all economic sectors and for all levels of government.