The business world has evolved in the two years that have passed since the onset of the COVID pandemic. For those of us in the business of insurance and risk management the challenges have continued to evolve. At Graham, we believe that our proactive approach allows us to better assist our clients in managing risk. Taking the initiative provides our clients the resources to adapt to the emerging threats facing their businesses. Our approach is rooted in a deep understanding of our clients’ operations and the emerging trends that may impact their organization on the horizon. I’ve identified three emerging market trends and outline my thoughts on how to best manage them during this current time of continued volatility in 2022.
The first trend I am seeing, which is not exclusive to the world of insurance, is the potential increase for mergers and acquisitions and the resulting impact on client relationships. Over one thousand insurance agencies were acquired or merged during the last two years, a 30% increase from the previous all-time high. The insurance brokerage industry has experienced rapid consolidation due to several factors with a large contributing factor of the potential for an increase in capital gains tax. Historically insurance brokerages maintain stable client bases which has attracted both industry acquirers as well as private equity backed brokerages. One significant downside to acquisitions is an increase in broker service team turnover and, of course, the shrinking availability of independent brokers available to navigate the ongoing hard market. Most industries’ labor markets, including insurance, are as tough as they ever have been and we envision acquisitions will lead to further employee migration and turnover. Graham celebrates 5 years as an Employee Stock Ownership Plan (ESOP) in 2022 which aligns our clients with our service teams and will help retain and attract high quality employees.
Automation is the second major trend impacting insurance and risk management. Global “insurtech” investments exceeded $10B in 2021. Companies will try to increase market share and enhance the client experience using newer technologies with the goal of underwriting more profitability. The expectation is that 2022 will see even more growth in this sector as carriers target increased market share and brokerages focus on more efficient client service delivery. Graham was active in Insurtech during 2021 and was a leader in the first broker-led accelerator program, BrokerTech Ventures, which is designed to build the next generation of technology solutions for insurance agencies and brokers. As an investor partner in the program, Graham collaborates with other leading companies in the industry to develop new solutions to improve customer experiences, streamline operations and reduce risks. Working with our clients we anticipated the rise in next-gen solutions like wearable tech, virtual-reality based training, and advanced telematics. With BrokerTech Ventures, we play an integral role in mentoring startup companies involved in the accelerator program, including testing and refining new technologies prior to entering the market. In the future, I believe insurance premium development will evolve from a historical loss performance model and move towards a behavior-based model.
Insurance alternatives will be ever present and continue to increase in interest for clients in 2022. The hardened insurance market has been rippling through all lines of coverage over the last 17 quarters. I envision the insurance alternative perspective trend may vary for organizations such as evaluating alternative carriers, program structures, and advisors. This year, more than ever, is an opportunity to align your insurance program with your business and your plans for growth. Insurance carriers will likely have weakened retention rates in 2022 as this year is the 5th consecutive year of Property & Casualty price increases. It is expected the premium growth levels will stabilize as business owners evaluate their risk profile holistically and look to take on more risk as well as new capital enters the industry along with the formation of new market entrants such as Managing General Agents (MGA’s). We anticipate executives will monetize their investments in people, safety, and technology and engage advisors who will provide a fresh eyes approach and alternative perspective to the status quo. Over the past two years, the majority of our new client relationships have been centered around realigning our clients’ risk management priorities, stabilizing their risk profile, and as a result, reducing their overall total cost of risk.
The business and insurance landscape will continue to experience volatility between the labor markets, inflation, and geopolitical risk. Working with your advisors to develop a holistic approach to risk management, partnering with best-in-class technology, allows executives to create a strategic multiyear approach to manage risk more effectively and lower your long-term total cost of risk. Understanding the emerging risks as it relates to your business and risk management and positioning your company with advisors who proactively manage risk will provide executives the blueprint for lowering their long-term total cost of risk.