Businesses today face a difficult insurance market, with rates rising across nearly all coverage lines because of an increasing number of claims and higher claims payouts.

Critical policies — such as property, directors and officers, cyber and auto liability insurance policies, as well as umbrella coverage — are experiencing rate increases anywhere from 5% to 30%, depending on the industry and geographic area.

Because the insurance industry is in a hard market, policies aren’t just more expensive — they are also harder to procure. Underwriters are being more selective about the risks they will cover or reducing the amount of coverage they will provide.

Unlike in a soft market where policy limits are readily available and rates are more affordable, businesses today must decide how much they can pay for certain coverage — or if they can afford to purchase those policies at all.

These are tough decisions for businesses to make. Eliminating or reducing insurance protection can leave a business exposed to risk.

Although some of these risks could be catastrophic, significant premium increases may make full protection cost prohibitive. That’s why it’s critical that businesses have all the necessary information about their exposures when structuring their insurance program.

Taking advantage of analytics tools

Embracing the use of analytics can help policyholders gain a better understanding of their insurance needs and exposures, as well as the potential costs of addressing these issues.

Although the industry has been using analytics for decades to determine policy premium amounts, these tools continue to evolve, becoming more robust and effective each year for evaluating — and addressing — an individual policyholder’s risk profile.

To use analytics to reduce your total cost of risk, policyholders should seek a tool that examines multiple lines of coverage — including D&O, cyber, property and umbrella — and one that has the ability to use that data to suggest the optimal insurance program structure for mitigating exposures. Using this approach helps brokers proactively locate the best coverage at the best price in the current insurance marketplace.

Many different types of analytic models exist to quantify the impact of various exposures. Some models, like HUB’s Stochastic Cost of Risk Evaluation (SCORE℠) tool, go deeper than a standard actuarial analysis to offer in-depth insights on nearly every line of coverage.

The HUB SCORE℠ tool provides insights on risk in three ways:

  • Determines the frequency and severity parameters for a particular risk.
  • Generates numerous loss scenarios, the likelihood of those scenarios taking place in the policy year, and possible loss outcomes if these events were to occur.
  • Presents different insurance financing options available in the market to address loss scenarios, with comparisons on which option offers the insured the most value.

For example, a HUB nonprofit client with umbrella limits of $200 million faced a significant rate increase at renewal. However, an analytic assessment found that the risk could be effectively covered with $115 million in limits, saving the client more than $200,000 in premium.

Because analytic tools such as SCORE℠ efficiently evaluate exposures and recommend coverage options tailored to the risk, policyholders that address their risk analytically may see premium cost savings.

Contact HUB International’s complex risk advisors to learn more about how a SCORE℠ analysis could help reduce your total cost of risk.