4 MIN READ
Published 01/06/2023
Organizations across the country face uncertainty and tough choices as economists continue to paint a gloomy picture of an impending recession.
“We’ve never experienced inflation, recession, pandemic, supply chain issues, social inflation, and labor shortage — all converging at the same time,” notes Matthew Moore, executive vice president and president of underwriting for Liberty Mutual Global Risk Solutions.
We’ve never experienced inflation, recession, pandemic, supply chain issues, social inflation, and labor shortage — all converging at the same time.
-Matthew Moore, EVP and president of underwriting for Liberty Mutual GRS
In a landscape of turbulence, how can companies effectively forecast their futures? What tools can they use to engineer resilience and reanalyze risk?
According to Moore, proactive risk-management planning, and the help of strategic partnerships with insurance providers, offer a way forward.
“Insurance can offer real solutions,” says Moore. “You need to work together with your carrier to develop smart solutions that strategically manage and mitigate risk.”
Three risk management trends to watch in 2023
In this time of uncertainty, here are three risk-management trends to look out for, along with why partnering closely with insurance providers can help companies build a roadmap for resilience.
- Companies’ risk profiles will likely shift.
For corporate risk managers, a critical takeaway is that economic turbulence has likely shifted your company’s risk profile — leaving many organizations at risk of being underinsured. As businesses may be tempted to reduce costs by cutting corners on risk mitigation, loss controls, workforce safety, good governance, and compliance, insurance providers will be keeping a close eye on risk profiles.
Property valuations are another factor impacting risk profiles. “Inflation, labor shortages, and supply chain issues all are driving property-replacement costs that are out of sync with valuations,” Moore says. In fact, Liberty Mutual’s experts estimate that a whopping 75 percent of commercial businesses are undervalued. For example, because of rising costs, a building valued at $1 million five years ago could easily cost 20 percent more to replace today. There are also other factors beyond construction costs, including the frequency and severity of weather activity and business interruption, that should be considered.
If you’re underinsured, Moore notes, “you may face another unpleasant surprise after you’ve already experienced a loss.”
Working together with your provider and broker, proactively, is the best way to help ensure your operations have the right coverage and can recover quickly after a loss.
- Insurance carriers may become more selective in response to economic disruption.
It’s not just insured businesses who are carefully navigating change — insurance carriers are also feeling economic pressure. Working to stifle inflation, the Fed raised rates for the seventh time this past December, this time by 0.5 percent. With so much rapid change, insurance carriers are rethinking their business strategies.
“Commercial insurance lines can face an amplified impact, as exposure bases like payroll or sales can decline quickly, reducing premium and increasing risk,” says Moore.
As the economy slows, carriers expect a decreased demand for insurance and, consequently, a decrease in premium pricing. While carriers’ investment income might increase, their tolerance for risk may weaken. Carriers could, for example, reduce their capacity in some industries and lines based on market cycle vulnerabilities.
The potential for carriers to become more selective highlights the importance for companies to communicate any business changes — both within their organization and to their insurance partners — to mitigate any unexpected changes.
- Value-add insurance offerings play an even more important role in managing total cost of risk.
The business world was already reeling from Federal Reserve Chairman Jerome Powell’s declaration that companies will experience “some pain” as the Fed raises interest rates to curb inflation. On the heels of this announcement came bad news from the tech sector, a major driver of the economy, which laid off more than 150,000 workers in 2022.
As the country braces for a possible recession, insurance has a major role to play in reducing risk and allowing companies to weather the coming economic storm.
“There’s a lot that a carrier can offer to lower a company’s total cost of risk by thinking beyond the coverages,” Moore said.
“Some companies see insurance as purely transactional — which is a mistake,” says Moore. “Your insurance provider can help lower your total cost of risk by thinking holistically and helping you strategize.”
Some benefits of partnering with your insurance provider include:
- Consulting with a team of risk control experts to capture all potential loss drivers — and plot out tactics to mitigate those losses
- Leveraging risk advisory services to help make operational changes to address different risks resulting from shifting business strategies and market conditions
- Benchmarking data and tapping into an extensive network to learn what has worked for similar organizations
“When recession hits and you have even less money to spend and you know the risk environment has intensified,” Moore notes, “it’s vitally important to create a strong relationship between the carrier, broker, and risk manager to make sure your insurance program is offering you as much value as possible.”
Four ways to build a roadmap for resilience
Despite the turbulent economic landscape, risk managers have the power to build a roadmap for withstanding volatility, and this power is strengthened by active partnerships with insurance carriers and brokers.
When building your roadmap to resiliency, Moore recommends following these four steps:
- Work with insurance partners to scale your coverage, ensuring valuations are current with rising inflation rates.
- Leverage risk-management practices that encompass risk engineering, control, and transfer.
- Take advantage of the risk advisory and consultancy services your carrier offers to implement best practices, improve safety, and reduce risk, and therefore cost.
- Establish and maintain channels of regular communication between your team and your carrier on a year-round basis to get ahead of any surprises.
“At the end of the day, your carrier wants to help you manage risk,” Moore explains. “It’s our job to form a genuine partnership to help you improve the risk environment — and it’s what we enjoy doing. Your carrier can be a great resource to you, especially amidst uncertainty.”
With more than 100 years of experience protecting companies across industries and organizations of varying sizes, Liberty Mutual has the deep expertise to help businesses strategize for the future. To learn more about our business services, visit: https://business.libertymutual.com/
Economic risk strategies: hold steady through the cycle
With today’s unpredictable economy, it’s essential to rely on a carrier who can deliver a solid risk response. Our top industry analysts share their macro trends to watch, as well as key takeaways that can help you make the right choices for your organization. Together, we’ll work to temper the turbulence and find a clear way forward.
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