Showing your value in a hardening personal lines market

While 2020 was a disruptive year — to say the least — for property & casualty insurance, one thing remained constant: It marked the continuation of a hardening market.

Personal lines customers were not immune. A report from MarketScout, for example, indicated that the composite rate for personal lines insurance increased 6.3% in the fourth quarter of 2020. Most impacted? High-net-worth homeowners with property valued at over $1 million. According to the same report, they saw their rates increase an average of 8.2%.

As the personal lines market continues to harden and homeowner clients see rate increases, it’s never been more important for agents and brokers to showcase their value. This starts with educating clients on the ongoing drivers of rising rates in order to maintain both trust and understanding.

Explaining the ‘why’

There are a number of factors impacting rates in the personal lines market.

A significant loss driver and ultimately impactor on rates is the ever-increasing frequency and ferocity of natural catastrophes impacting homeowners across the U.S. According to NOAA, 2020 was a record-setting year in that 22 large $1 billion weather and climate events hit the U.S. It also was the sixth consecutive year that 10 or more billion-dollar weather disasters had affected the region.

We’re not just talking about hurricanes in Florida or wildfires in California that drove up the price tag. Rather, the bulk of the costs came from rain, hail, and windstorms hitting many parts of the country. As a result, homeowners from North to South and East to West are seeing their insurance rates increase.

Compounding this, home repair and replacement costs have also risen significantly in the past few years. Consider the case of a client who is looking to replace their 3,000 square foot roof after a fire. In 2008, the total material cost for this asphalt roof was around $2,100 (or $2,600 if adjusted for the cost of inflation). The cost today is $4,600 — a 77% increase.

It’s the same story for homeowners looking to do cosmetic repair or renovation work—of which many chose to do after prolonged COVID-19 quarantines and stay-at-home orders. Lumber costs, for instance, have more than doubled since last year. Upgrades to a kitchen alone — from a new refrigerator to refreshed kitchen cabinetry — cost 22% more this year than the year before.

Put simply, supply chain challenges, increased building activity, shortages stemming from pandemic-related shutdowns and demand for labor have all increased the cost of goods and services for home repairs and renovations. As the price of goods goes up, so too do the corresponding claims costs (in the event of loss or damage). In turn, homeowners are seeing this reflected in their homeowners’ policy pricing.

Reminding clients of your value

Homeowners will invariably look to their insurance agents and brokers to explain these price increases and the drivers of loss inflation. An agent or broker’s inability to articulate logical explanations of homeowners’ rates may leave clients itching to shop for lower prices and potentially compromising the quality of advice and coverage they currently receive. Knowing how to go about these conversations will improve client retention and showcase your value to clients.

As a rule of thumb in communicating with clients about rate increases, insurance agents and brokers should look to employ the following five key tactics:

  1. Know your talking points, including the trends and loss drivers. Having an illustrative example or two on hand can also help to bring these concepts to life.
  2. Exhibit confidence rather than appearing apologetic in your explanation. Arming yourself with facts and information about the value clients receive during a claim will ensure they get the claims experience they expect, without any shortcuts.
  3. Lean into your value. Showcase your expertise as a qualified insurance agent. By demonstrating knowledge of their risk profile and policy options, you can help clients see the long-term value in their relationship with you.
  4. Think about scalability. Handling client concerns reactively will be a drain on resources. Rather, focus on proactively reaching out to clients at scale. By utilizing co-brandable marketing materials that can be shared broadly via email and social media, you will still be able to bring awareness to your entire client base.
  5. Provide a solution. Whether in conversations yourself or by arming front-line representatives with a detailed script, always look for opportunities to ameliorate price increases by optimizing credits and deductibles. Advising clients to install a water shut-off device, and taking advantage of related credits, is a strong example of this.

All of these tactics, when used together, offer a holistic approach for agents and brokers to help educate clients while also showcasing the value of their expertise. As rates rise, some triggers (like water losses) can be controlled, whereas others (like catastrophes) can’t. These seemingly simple steps can help to bridge the gap in understanding and underscore the real value of working with an independent agent or broker.

Article By: Ana Robic

Source: Property Casualty