The insurance market has changed significantly in past months, particularly the auto and homeowners markets, with carriers pulling out of certain segments or significantly altering their capacity offerings. For independent agents and their clients, these changing dynamics are considerable and demonstrate the importance and value of the independent agent distribution channel.

Over the past year, the industry has witnessed “a perfect storm in the homeowners market of increased weather events—both catastrophe and non-catastrophe weather events, from hurricanes and wildfires to convective storms, tornadoes and just strong thunderstorms," says Brian Foley, vice president, personal lines, RPS. “And then there's inflationary impacts on the cost to rebuild homes, both in terms of the cost of materials and the cost of labor, as well as the social inflation factors and complex legal environments in some catastrophe-prone states as well."

The industry is also being impacted by “the underlying pressure to achieve rate adequacy after years of underperformance in the insurance market," Foley says. “And then there are a number of carriers that have become insolvent recently."

In California and Florida, coverage and the availability of coverage is shrinking. In particular, the California personal lines market is being impacted by a regulatory environment entirely dependent on the state insurance department approving rate changes to address carriers' increasing loss ratios.

“Large carriers pausing writing new business and subsequent carriers just pulling out of California is changing the risk pool," says Robert Arnold, managing director at Charles Taylor, a global leading claims services provider. “In the next couple of years, I expect we're going to see the marketplace tightening up further in California because the states aren't letting them assess the premium appropriately."

“The hope for the future is, however, that more carriers will move into the marketplace eventually and start writing business, or at least start writing pockets of business so that it can be more competitive," Arnold adds.

However, in a move to address issues in the Golden State, California Insurance Commissioner Ricardo Lara announced his Sustainable Insurance Strategy on Sept. 21. The agreement will allow his agency to work more quickly to assess and adjudicate carriers' rate-increase requests, which now take six months. California reversed its position on barring insurance companies from using forward-looking catastrophe models, which is standard in most other states. Previously, California had only allowed carriers to use historical 20-year data when pricing policies.

Additionally, Lara wants his agency to more accurately price at-risk homes and encourage residents to better harden and protect them from wildfires, and squelch the rapid growth of California's FAIR plan, which, has become the “first resort, not last resort" for many residents.

Still, carrier appetites will remain picky. “Carriers that have traditionally written on admitted paper are now choosing to retract from their admitted paper and redeploy that capacity to their excess & surplus paper," Foley says. “With E&S coverage, they're able to be more selective on what risks they want to write, how they're going to write those risks and, especially with some of these tough catastrophe states, they're able to exit those states a lot quicker."

“In personal lines, agents are now having to piece together coverage on homes, similar to what you would expect in bigger commercial accounts or what we used to do in the ultra-high net-worth space, but they're having to do that more often on what we would consider an affluent homeowner account," Foley says.

This instability means that clients are looking for financially strong carriers that maintain flexibility and are likely to remain reliable during this period of economic uncertainty. Agents can provide these carriers in a number of ways.

The best places to start are “focusing on relationships, reading up on what's causing these market conditions and staying abreast of them, both up and downstream," Foley says. “For agents, their relationships with their clients are key because they're [clients] the ones that are ultimately paying the price or making the sacrifice in terms of what coverage they're giving up."

“The more you speak to your clients, the more you advise them of what's happening to set that expectation of perhaps big premium increases or some coverage changes for certain perils—that needs to be communicated," Arnold agrees.

With 17% of consumers rating the cost of insurance among their top financial worries and 51% looking for ways to save money on their existing insurance policies, according to a recent Nationwide Agency Forward survey, agents can deliver a solution through relationships outside the client-agent-carrier paradigm.

Other important relationships for agents include those “with insurance market carriers and wholesale partners," Foley says. “Wholesalers can really be a huge value-add in a time like this when things are just chaotic—they're able to bring together some creative solutions and additional markets that agents may not generally have access to."

Also, advising clients on whether they are taking unnecessary risks by cutting back on insurance coverage will ensure that client-agent relationship continues. To help clients navigate this challenging market, “it's all about education," Arnold adds. “The more you inform your clients and your customers of what's happening and how it's going, the better educated your customers become."

In July, Trusted Choice^®, the Big “I" consumer branding program for independent insurance agents and brokers, released the Hard Market Toolkit. The toolkit assists Big “I" member agencies in navigating the current insurance market and helps them effectively communicate with their clients about its complexities.

Olivia Overman is IA content editor.