Filed Under:Agent Broker, Commercial Business

Filter Through the Pollution Market

Environmental experts agree that 2012 will be the year of the rate increase for pollution-related coverages. This presents both challenges and opportunities to independent agents, who must help customers understand the realities of the marketplace.

Understanding the developing trends in any market segment is critical to having a successful year. 2012 promises many changes in the insurance industry, but particularly in the environmental segment. Events are finally moving the business in a positive direction, and now is the time for agencies to get on board with the huge opportunities presented by pollution coverage.

This market shift creates great opportunity. Significant growth is expected in the overall services industries as contractors ramp back up in the improving economy. The need for contractors’ pollution liability (CPL), CPL with E&O, and CPL with premises pollution will continue to grow, as will the value of each account written.

While this is not an environmentally specific issue, it affects our market segment as well. Losses in core environmental coverages appear to remain positive. Carriers see challenges in the associates commercial lines. So, for example, when writing a storage tank contractor, the pollution component is generally good, but the CGL, auto, excess, and workers’ comp are all far more challenging at today’s rates. During the long softening market of the last several years, these lines often have been undervalued when balanced against the expected profitability of the pollution component, and the subsequent results have deteriorated.

At a recent national conference, many environmental markets had the same message—2012 will be the year they get rate on their books. Increases are no longer a nice idea, they are mandatory. To generate the proper return on equity, underwriting profit will be required. While there have been a few individual forays into rate stability over the last several years, they all have been short-lived solo ventures. This is the first time in years that the message from many carriers is the same, making it much more likely to be sustainable.

In addition to the benefits to long-term customer retention presented by selling the broadest possible coverage, rising rates typically help an agency’s bottom line as well. The rising premium tide will often mean more income and a better revenue stream from existing business.

So, concerned about rising rates with insureds who are still reeling from the recession, what should an agent do? First, partner with a small group of environmental carriers that are taking a responsible approach to this shift. These are the companies that are willing to work with you on an account-by-account basis, not mandating draconian increases across the board. These companies are managing their books to a modest increase, meaning you will get support when you really need it.

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