The property and liability insurance picture is looking rosier all the time. It seems that every day we are seeing insurers and reinsurers reporting record or greatly improved profits. This will ultimately result in lower premiums and possibly broader coverages. The hurricanes in Florida may put a dent in third and fourth quarter profits of some but they won’t reverse the trend.

Before we jump into that topic, why don’t we take a minute to discuss how we got to the hard markets of 2000 -2003. It was a perfect insurance storm, but like all storms, they do blow over. First, the soft market of the late 1990’s drove premium prices down to extremely acceptable levels. As a result, insurers were paying out more in claims than they were taking in premiums. But that’s OK as long as the insurer’s investment income is enough to compensate. Remember the spring of 2000, the stock market began to tank, and there goes the investment income. Compound that problem with rising expenses. Insurance companies buy insurance for some of the risks they take. That’s called reinsurance. The reinsurance market went through the roof after 9-11. So while premiums were at an all time low, investment income dropped significantly and reinsurance expenses rose dramatically. Insurers, in their mind, had only two choices, stop writing insurance or raise premiums. Dealers saw both scenarios occur and were left with fewer markets and much higher premiums. But this too shall pass.

Welcome 2003. In 2003 we saw some good things happen. First, reinsurance costs began to come down to reasonable levels. Second, the investment pictures for 2003 and early 2004 were really quite good. However, while premium increases in 2003 were not as painful as 2002, they still stung. By the end of 2003 we saw dramatically increased premiums compared to 2000, significantly increased investment income and significantly reduced reinsurance expenses. More income combined with lower expenses, 2003 and the first half of 2004 were great times to be an insurance company. But when do you benefit from all this good fortune?

The answer may be now, if you play your cards right. Since insurance companies like their profits as much as the next guy, only competition will bring prices down. Buying insurance is in many ways like buying a car. If I were to walk into your dealership and ask the salesman for the price of a car, he’d walk me right up to the car tell me the price on the sticker. If my response was “great, let me right you a check”, your salesman try not to look stunned and our negotiation would be over even if the salesman could have lowered the price. If you do not create a competitive environment for your insurance renewal, you’ll pay more and have no choice but to say “great, let me right you a check”, the agent will just smile and you may have left profits on the table.

As the insurance market begins to soften, insurers keep it quiet. They don’t want you to know that you again have negotiating power. However, if you don’t have other options your negotiating power in limited. I often hear the comment, “it’s not worth going through a bid process because there are so few bidders left”. While it is true there are fewer players, that doesn’t really matter. Ok, it’s nice to have five bids to choose from but let’s say you only have two bids, is that bad? Maybe the outcome is that you existing carrier felt the competition and reduced their premium 10% to 15% or the other bidder came in w/ a quote that blows your renewal carrier out of the water. Those are great outcomes, so I would argue that a reduced field does not necessarily mean a reduced outcome.

There is a good chance that you can improve your bottom line this year by lowering your insurance costs. But no agent is just going to walk in and say “it’s your lucky day, we dropped our premiums”. You have to make it happen. The only way you can make it happen is to create a competitive environment. Unfortunately, one difference between insurance buying and car buying is timing. If I don’t like your car deal, I can just go down to the next dealership. If you wait for your insurance renewal, it’s too late to seek other alternatives.

So start your insurance buying process 60 to 120 days early and create a competitive environment, you might just find it worth your time as this insurance market improves.