Insurer loyalty and long-term pricing stability: is it worth it?

It is a question that we are often asked to respond to – what is the value of showing loyalty to my current insurer? Will it result in a more stable premium outcome in the long term? Will it result in better claims outcomes?

The answer is complicated and varies on the class of insurance product. There are technical reasons why it is recommended to maintain continuity on ‘claims made’ policies (see here: Bellrock - Claims Made Insurance Considerations) but otherwise the question is a complex one.
Insurer profile and strategy

Consideration should be given to the “profile” of the insurer, and the underwriter. Are they a motivated “partner” to your business? Are they an established participant or a new entrant to the market?

An insurer attempting to establish market share may take a short-term view on pricing for their own benefit. Whereas, an established insurer is likely looking to achieve a more balanced portfolio with marginal steady growth across their book of business. They intend on writing “risk managed” business that is profitable for them and aligning themselves with “loyal” policyholders.

Direct relationships with individuals

Has the assigned underwriter representing the insurer taken time to understand your business? How long has that individual been with the insurer? How long have they been underwriting your risk? Are they willing to have direct dialogue with you?

A personal relationship generally results in better outcomes for clients and underwriters.

Insurance market cycle

It is important to consider the stage of the market cycle.

During a “soft market” there are opportunities for lower excess and pricing structures as well as wider cover on offer from insurers. A short-term premium reduction and addition of policy extensions may not always be sustainable.

Generally, during soft markets, “holding” insurers will need to compete to keep policyholders or their portfolios will be decimated. Holding insurers may offer modest reductions compared to “attacking” insurers who tend to aggressively “buy” risk.

It follows, and we are starting to see, that savings do not yield the benefits of a “stable” relationship with insurers when the market “turns”. If you have taken advantage of the softer market cycle by making regular changes to your insurer panel, then chances are that you will be subject to pricing and coverage volatility. Leaving an insurer for short term premium savings may come back to haunt you.

Insurers review their records when they receive new quote requests. If they see the same insured in the market yearly (seeking alternate quotes) they will often refuse to offer quotation terms: their attempts to secure the business in past years have been futile, why would that change this time? Insurers do not wish to deploy resources to underwrite the risk as a “price-check” or to be put to competing quotes in the next 12 months.

I have been loyal to my insurer and had no claims, why are my premiums higher and my cover narrowed?

During hard markets insurers will generally look to protect their long-standing relationships but this is not always the case.

Underwriting guidelines can change at a corporate insurer level and leave an underwriter with no choice but to push through increased pricing or restrictions on cover.

Some examples include:

  • Property insurance

  • a decision may be taken by the insurer to no longer insure any property risk that is above the 26th parallel South, or if assets insured comprise expanded polystyrene in their structure. The underwriter may simply not be able to offer renewal or may otherwise have to double or triple their “rates”.

  • Professional indemnity

    “cladding exclusions” have been applied in recent times by insurers. The scope of these exclusions will vary by insurer: some completely exclude any claim in connection with “cladding” others will exclude a “claim” where it is alleged the cladding does not conform with regulations. There are variants to those “forms” of exclusions from insurer to insurer. A holding insurer may issue strict guidance on the wording of the exclusion. The underwriter may therefore have no ability to alter the coverage position and that may require that you move insurers in order to obtain the cover. There is little the underwriter can do.

  • Directors’ and officers’ liability

    Some insurers can no longer offer cover to the “company” having regard to claims arising against it for the trading of its securities (see here: Directors and Officers - COVID-19 Implications). If the policyholder requires that cover it may need to seek an alternative insurer to acquire it.
The social premise of insurance, that the losses of the few are paid for by the many, remains. BUT insurers must review loss ratios and, remediate or remove loss making clients, industries and other loss demographics from their portfolio. Simply put, if they do not do so they will become unprofitable. If that happens there will be less insurers in the market – supply and demand will dictate that cost of insurance will increase in those circumstances. That said whilst there are legitimate reasons for insurers change in appetite, recently (particularly following the COVID-19 outbreak) there has been a number of unfortunate examples of poor behaviour by Insurers. These include significant premium increases, imposition of severe coverage restrictions and reductions in deployed capacity applied to renewals where Insureds have maintained a long spanning relationship (some in excess of 15 years).

The policyholders who have been victim to these unfortunate circumstances could have been guarded from them if they been informed of the insurer’s change in appetite at least 3 months prior to renewal. Or at least, those insurers could have extended their policies to enable the policyholder to seek alternatives.

It is worthwhile reviewing our article on COVID-19 and steps that may be taken to ensure your business is not susceptible to such conduct which can be found here: Bellrock - COVID-19 Considerations
Insurer loyalty and claims
Claim outcomes are informed by the insurance contract and proper claim’s advocacy. For the latter, the policyholder must be represented by a competent claims broker. Quite often this is where the process “falls down”.

The days of ex gratia payments have somewhat passed. Insurers would make these payments where they had no liability under the policy for a claim and to take the coverage position would detrimentally impact the relationship with the broker/policyholder.

The claims function is now more often being separated from underwriting. Cover is assessed on the papers, not what may have been “intended’. Intention now seems to become relevant when it comes to preparing Affidavits in litigated “coverage” proceedings – an undesirable, costly and time consuming path for any insured to take following an uninsured loss. When that does happen, the underwriter with whom the policyholder has a relationship with has very little input with the broker who placed the policy, or, the policyholder who was to benefit from the cover. The dispute becomes embroiled in legal technicalities, and more often than not, the Duty of Utmost Good Faith becomes secondary: as does “loyalty”.
Conclusions and points for consideration:
  1. Insurer loyalty is very important, but not absolute when considering your decision to renew or strategizing to attain cost and coverage consistency.

  2. It will have greater bearing to cover and rating consistency if you have a direct relationship with your underwriter. The relationship should be co-ordinated and facilitated by your broker.

  3. Market cycles can be outside the control of the underwriter with whom you have enjoyed a long relationship with. Trends in claims frequency can change an insurer’s risk appetite.

  4. Insurers ought to communicate immediately to your broker, and in turn, you, when they intend on changing their appetite, rating or coverage in connection with your risk profile.

  5. Claims management and payment considerations should be a key consideration when you are offered an alternative quote. That said, it is how a policy is arranged, the terms and conditions of the cover and the way the claim is presented that will shape a positive coverage response.

  6. Loyalty is a two-way street. You need to consider your own risk profile and performance. Has your business been profitable to the insurer? If the answer is no, consider whether you would continue to have business dealings with a client where you lost money as a result.
The decision whether to remain loyal to an insurer is an important consideration. Your loyalty should be considered in line with the above factors as well as other factors which are specific to your circumstances. It should form an important part of the renewal strategy of your insurance program. Insurers understand the need to be competitive in the marketplace, like any business. Finding a balance between pursuit of a low price, and building a relationship and accompanying premium pool with motivated underwriters is the key to stability in your insurance program.