By DAN REYNOLDS, senior editor of Risk & Insurance®
I love soft markets. They have the salutary effect of clearing out the deadwood, of stamping out the wanna-bes, of precipitating the so-called "flight to quality."
Fly-by-night carriers jumping into insurance lines they know nothing about? Out! Fast-talking brokers looking to make a quick buck? Out! Hangers-on vendor types feeding off healthy industry flesh? Out! Bait and switch players? Out!
That's what soft markets do. They clear the air, make you think twice about whether you really want to be in the business, double-check that sell-siders say what they mean and mean what they say--not just for today but for tomorrow and the day after tomorrow.
Nothing gets under the skin of buyers more than opportunists who flood into a market only to retreat when the going gets tough. Soft markets have a way of blowing fair-weather friends out the door.
It's a good time to be a buyer, and a great time for buyers to take note of who their friends really are.
Soft markets mean more competition, and more competition among the carriers. More competition means better prices. Better prices are always good for buyers. More competition means more innovation; again, good for buyers.
Soft markets force the industry's more reputable institutions to pay more attention to customer service, and to revamp billing systems, a critical customer touch point all too often ignoreed by the industry. Soft markets force the industry to bend over backward just a little more.
In turn, buyers during soft markets challenge the sell side by pushing for more coverage, and brokers are resorting to innovative and shrewd strategies to wring more coverage for lower prices.
Brokers, for example, have had to scramble to re-examine directors' and officers' (D&O) policies on behalf of their automotive and financial services industry clients. What's bad about that? Nothing, I say.
There's still money to be made in the down cycle, and plenty of lessons to learn.
Lower prices give buyers some breathing room. Given a little more time, buyers have a chance to make better buying decisions. Who wants to make decisions when they are pressured by rising rates and tightening capacity?
Let this soft market last forever.
(Read Managing Editor Cyril Tuohy's Counterpoint "Soft Markets: Benefit no One.")
August 1, 2010
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