For Manufacturers, Alternative Insurance Solution May Be Cure for Hard Market Woes

March 4, 2021

There is no simple, easy solution to the challenges posed by the hard market for Property and Casualty Insurance. Fortunately, successful manufacturers have no aversion to the kind of planning and hard work it takes to make their business profitable and secure.

By now, most business leaders understand why the P&C market has hardened and recognize the driving forces, which include:

  • Weather-related disasters and violence associated with civil unrest driving up the cost of building materials and, as a result, of Property Insurance

  • Nuclear verdicts in lawsuits causing carriers to reduce liability limits in multiple lines of coverage and leading to tougher terms in Excess Liability/Umbrella policies

  • Remote work arrangements and increased activity by criminal networks creating an ever-growing number of cyber breaches

  • COVID-19 affecting … well, just about everything – including organizations’ ability to pay their insurance premiums. Loss of premium due to customers’ inability to pay has created huge losses for insurers, resulting in rate hikes for still-solvent insureds.

For those in the manufacturing industry, there are two basic routes to establishing and maintaining a cost-effective Property and Casualty Insurance program. Both require diligent risk management. Where they diverge is in the choice between:
  1. a traditional, carrier-based approach, possibly requiring some coverage from the Excess and Surplus Insurance market or

  2. an alternative design, in the form of self-insurance or a group captive program.

Think of the latter as the one less traveled by.

The Outlook Entering 2021 

Here’s the outlook on the manufacturing industry as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:
  • Manufacturing is still viewed as desirable business: While manufacturing clients are seeing price increases and capacity decreases in key coverages, insurers are still willing to compete for accounts perceived as high quality.

  • Heavy focus on risk control: There is nothing new about insurance company risk control recommendations. What is new is the degree to which insurers are holding policyholders responsible for following through on those recommendations. Be prepared at renewal to talk about what your business is doing to comply. As manufacturers grapple with a shortage of experienced workers, little time to train new workers and existing employees working more overtime hours, the risk for injury increases. Insurance companies want to know that manufacturers are maintaining a safety culture.

  • The need to be open to alternatives: With insurers cutting back on limits, clients will need to be open to working with multiple insurers to meet their coverage needs in Property and Umbrella/Excess. For some clients, the Excess and Surplus insurance market will be a solution. For clients facing unmanageable price increases, captives and other forms of alternative risk transfer may be viable options.

The market outlook was particularly bad for Property and Excess/Umbrella Insurance, showing rate increases, limited availability, reduced capacity for limits, and heightened scrutiny and selectivity on the part of underwriters. Manufacturers working with high-risk materials, such as plastics, were likely to see even greater increases on Property coverage.

Commercial AutoCyber Liability and General Liability coverage offered similarly pessimistic outlooks, though all three appeared at least stable in terms of availability. The increased risk of COVID-19-related claims created a potentially volatile landscape for Employment Practices Liability Insurance, although coverage availability and capacity were stable.

Workers’ Compensation was a wild card – stable at the time, with the potential of individual states to allow “presumption of compensability” in COVID-19-related cases threatening that stability.

To download the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.


What’s New 

As we noted in our recent report on the market for personal insurance, property losses resulting from the February winter storm and power outages in Texas will exacerbate an already hard Property Insurance market, including for commercial property.

Nevertheless, the hope is that by the third quarter, widespread vaccination and the reopening of the economy – combined with recent a recent surge in investments in the reinsurance industry that could lighten the financial burden on standard carriers – will enable the P&C market to stabilize.

What You Can Do 

Here are steps you can take to mitigate the effects of the hard market:
  1. Be zealous about risk management. In a hard market, underwriters pay even closer attention to loss history and whether manufacturers have complied with loss control recommendations. Those with strong loss histories and proven risk management programs are likely to find a market among standard carriers. Those without may have to turn to Excess and Surplus carriers and prepare themselves to experience sticker shock.

  2. Work closely with your agent or broker – whether you’re renewing your coverage or exploring a new alternative, and start early. If you plan to renew, allow yourself time to gather all the information your agent/broker will need to present in the underwriting process, and consider committing to an early renewal. Some carriers may be willing to make pricing and/or coverage concessions as a reward for early commitment.

  3. Keep in mind those alternative insuring methods. As we advised in the Market Outlook whitepaper: “Be ready to face challenges in securing certain coverages and excess limits. Your current program structure may not be available at renewal and your incumbent carrier may no longer be willing to provide competitive coverage.”

Captive insurance, once the realm of only large companies with the capital necessary to self-fund, may be not only a viable but a desirable alternative to mid-size companies open to creating or joining an existing group.

As PropertyCasualty360 recently observed, the appeal of captive insurance has broadened to include additional companies interested in gaining more control over their insurance placements.

“Traditionally owned by one company, alternative captive structures that fit the needs of a wide spectrum of organizations are gaining momentum,” PropertyCasualty360 reports. “Even for those who are not as well resourced, there are options in the captive market.”

Those options include:
  • Cell captives, in which the captive owner holds the regulatory capital and insurance licenses, manages the day-to-day operations and rents cells to member organizations

  • Group captives, in which members pool risks as a single entity, with each sharing profits, as well as risks.

In addition to providing a solution to the higher rates and reduced capacity offered through traditional carriers, captives offer members access to a range of services they wouldn’t have on their own, and they can enable members to reward loss control by reinvesting the saved funds they achieve as a result.

One more step: Register for Alera Group’s March 18 webinar, “How Advanced Strategies Address the Rising Cost of Healthcare.” Whether or not a captive alternative is the preferred option for your Property and Casualty Insurance coverage, it may be the right solution for your company’s group healthcare needs. Advanced strategies involving data analytics are essential to maximizing the benefits of that solution.

During the webinar, our experts will discuss analytics and help you navigate the complex landscape of advanced strategies available to improve your organization’s physical, mental and financial health. To register, click on the link below.


About the Author  

Christopher Breck 
Senior Vice President
Alper Services, an Alera Group Company

Chris Breck began working at Alper Services in 1989 and is now a Senior Vice President managing the day-to-day insurance and business needs of many of Alper Services’ oldest clients. He specializes in delivering alternative risk solutions, including captive insurance programs. Chris maintains a broad industry focus that includes manufacturing, service, retail, healthcare and nonprofit organizations.

Contact information: