For nearly two years, the hard market has persisted, with inflation often being the main culprit. However, a significant part of this problem stems from rate regulations, which make it challenging for companies to adjust rates in time to match inflation. This setback is further exacerbated when renewals must be initiated up to 60 days in advance, with no opportunity to compensate for inflation during the policy’s term.
Overregulation, particularly in states like California, has led to a lengthy and stringent rate regulation process. This has left insurance carriers grappling with outdated rates, operating at an underwriting loss, and depleting the necessary surplus that allows them to write business. In contrast, other states have a more favorable ‘file & use’ rating system, which allows carriers to file rates and automatically receive an immediate increase. This system fosters healthy competition and a competitive marketplace, a stark contrast to the overregulated states.
The extreme California regulations have forced companies to leave the state or at least choose to non-renew a significant number of policies. This is where rate regulation has gone overboard and causes more harm than good. While the California Insurance Commissioner Ricardo Lara claims to be addressing this, the overall political climate in California may make it difficult to increase rates, and this may be somewhat of an issue in other states as well. Insurance agency owners know better than anyone else that they have pricing pressures to win business, and competition is the best rate regulator consumers can have. Stringent rate regulations that come from overregulated states cause problems for the marketplace nationwide. This is what consumers are now dealing with.
If there are issues in the marketplace with certain risks, the most impacted clients should be informed about why the problem exists. Communicating with your policyholders is important as you are placing their risk. It’s also your obligation to let them know why you are placing them with a surplus lines carrier with policy terms that may not be as favorable as those in an admitted policy.
You may want to include an article in your newsletter or send out an email explaining why the marketplace is having issues. However, keep any reference to politics out of those communications and stick to the facts. Let them know that the regulatory conditions limit your options. This is why some may reach out to elected officials—and it may not be a bad idea for you to suggest they do. When constituents reach out to their legislators in good numbers, it puts pressure on those legislators to act. This is what is happening in some states in response to the hard market. Legislators in Florida have been making some changes that have brought new competition to the marketplace.
As an insurance agency owner, you are not just a passive observer of these regulatory issues. You have the power to make a difference. Have you reached out to the insurance commissioner? Have you requested a meeting with your elected representatives? Have you been actively involved with your local agent’s association in advocating for changes to the laws that are making it difficult to do business in your state? Your voice and actions can be instrumental in bringing about the necessary changes.
Keep in mind that consumer groups who may have an unreasonable bias are engaging with your elected leaders. If you are not, you allow them to have a voice that is detrimental to your agency and policyholders. Many of these groups do not care about insurance company solvency; they care about making themselves look good to help gain more members and secure more funding. If you are not engaging with your elected officials, you are making it more difficult for yourself to do business and letting your detractors give unchallenged access to elected officials.
It’s up to you to change the system. If you are silent, then your perspective and experience will not be heard. If the industry is silent, then undesirable conditions will continue. If your policyholders are silent, then they will not have access to the best products and services available. Solving regulatory issues should not be a full-time job, but agency owners need to remain active even beyond this hard market if they want to constantly maintain a healthy marketplace.
