by Amrit Chana of John Foord
In the realm of insurance, a cyclical pattern of hard and soft markets is a prevailing phenomenon. These market cycles pivot on factors such as capacity availability, heightened scrutiny, environmental shifts, and political dynamics. In hard markets, marked by constrained capacity and intensified scrutiny, businesses encounter hurdles in securing favorable insurance terms. Conversely, soft markets provide more lenient conditions due to expanded capacity.
Market volatility within the insurance industry can stem from various factors. Significant events like the COVID-19 pandemic and geopolitical conflicts play pivotal roles in driving volatility. Inflation emerges as a crucial factor, impacting insurers by simultaneously raising claims costs and boosting investment returns. Discrepancies between fixed asset inflation and investment returns can tighten margins. This phenomenon is particularly evident in property damage insurance, where inflation accentuates the disconnect between historical costs, current sums insured, and actual values at risk.
The ripples of market volatility extend across various cost components including equipment, materials, labor, and energy expenses, among others. Traditionally, businesses have relied on indices such as the Consumer Price Index (CPI) and Producer Price Index (PPI) to gauge asset values which can fall short in reflecting the complexities of specialized industrial asset replacement or reinstatement costs. It is generally known that CPI tracks consumer price changes for everyday goods, while PPI monitors producer and manufacturer price shifts across industries and both indexes do not account for specific context.
Amidst this backdrop, seeking regular, reliable, and defensible advice on sums insured remains imperative, especially with fluctuating material prices, labor rates, energy costs, and currency exchange rates – to ensure that current sums insured are accurate and robust.
In conclusion, understanding the intricacies between the various market factors is pivotal for making sound insurance decisions. Regular assessments and expert guidance are essential for ensuring accurate and current estimations of asset values. By embracing these proactive measures, businesses can effectively safeguard against the pitfalls of underinsurance, protecting their financial well-being in the face of uncertainty.
John Foord is an independent advisory firm that specialises in the valuation of commercial and industrial buildings, civils, structures, plant, and equipment across more than 70 industries ranging from hotels, energy, infrastructure, high-tech, manufacturing to telecommunications. They help support insurance companies, re-insurers, brokers, and owners by assessing current reinstatement costs to ensure that the declared values are accurate and defendable.
John Foord can assist on the following:
- Reinstatement Costs – shine light on current costs and how they can impact insurable values for your locations in a complex changing world.
- Schedules of Assets – Improve asset and financial management with accurate detail on your fixed assets.
- Portfolio Analysis – Quickly and easily manage large portfolios of assets internationally using our sophisticated models and databases.
Trinity and John Foord can help you and your organization be prepared for unexpected market conditions and mitigate risks. Inquire now through this link: https://trinity-insures.com/collections/service-solutions/products/risk-management-and-loss-prevention