Publish Date: July 9, 2024
Author: Richard Mansfield
Tags: Blog - SeubertU

CFOs Ongoing Strategic Role in Risk Management within the Continuing Hard Insurance Market

By Richard Mansfield  |  Seubert Chief Financial Officer & Chief Operating Officer

A Chief Financial Officer (CFO) usually plays a crucial role in the evaluation, planning and execution of their company’s commercial insurance renewals by leveraging their financial acumen and strategic insight into building an optimal risk management program for the business.

The CFO’s role within an organization has historically revolved around managing the finances of the business while also responsible for accounting, reporting, and disclosing the results of the operations to key stakeholders. More recently, the CFO has become a key contributor to the strategic vision of businesses, involved with cash and investment management, enhancement of technology, financing, talent recruitment, and communicating with the executive management and boards as to how the business is aligning with its strategic plans.

Another current critical aspect of the CFO job is dealing with risk. Managing risks associated with cash, capital, resource deployment, compliance and strategy is core to the role. As we move into and beyond the sixth full year of this current hard insurance market, a CFO can continue to take actionable items to manage the price of insuring its current risks as well as anticipating emerging risks.

The current hard insurance market began in 2019 and has continued through to 2024. There are several significant contributors that led to these current market conditions, as insurance company’s books of business became less profitable and unsustainable.

  • The Impact of Investment Income Insurance companies rely heavily on investment income to maintain profitability. In the decade-plus years prior to 2019 – interest rates remained at historically low levels, resulting in less investment revenues over a historically long period of low interest rate environment.
  • Social Inflation Refers to matters beyond the scope of just economic inflation – that lead to unpredictable increases in costs. This includes increase in claim severity above what could be anticipated under the usual scope of economic inflation and claim trend (i.e. “Nuclear Verdicts”). They have happened so often recently – that has led to a desensitization from the public perspective. Furthermore, there has been a rise in negative sentiment towards corporations and increasingly larger expectations of corporate accountability and responsibility for claims.
  • Catastrophic Events These have increased in frequency and severity over the past two decades, not only domestically but worldwide. Hurricanes, wildfires, flooding, droughts have continued to occur more often and more damaging.
  • Recent Economic ConditionsSignificant supply chain disruptions, and historically fast rising inflation amongst a turbulent geo-political environment, subsequent to the COVID-19 pandemic have significantly impacted the costs of claims.

Eventually, all hard markets do subside. There does appear to be signs of moderation in the amounts of annual increase across certain lines of business as we navigate through 2024. However, it does appear evident that the overall hard market conditions will continue to progress through 2024 and likely into at least a good portion of 2025.

As a result, there are several current considerations that a CFO should continue to work on as commercial insurance renewals approach.

  • Conduct a Risk Assessment to Identify & Quantify RisksWork with broker and/or key teammates within your organization to identify all potential risks the company faces, including operational, financial, regulatory, and emerging risks. Evaluate the potential financial impact of those risks identified to prioritize coverage needs.
  • Planning – Begin planning for your insurance renewal, at a minimum, several months in advance, and preferably in accordance with the results of the risk assessment. Pre-planning meetings with your broker can be crucial here.
  • Risk Management & Loss Control – Certain businesses have established formal risk management programs that oversee the implementation of an internal safety and training program for the ultimate benefit of mitigating the likelihood of claims. It would be beneficial to continue to invest in these types of risk-mitigating initiatives as, if managed successfully will lead to less claims, and ultimately reduced premiums.
  • Optimizing Insurance Program Structure – The CFO should work with their broker to regularly review policy terms, limits and deductibles to balance insurance coverage needs with associated premium costs. Additionally, consideration should be given to alternative risk financing options such as self-insurance of certain risks / increased deductible programs. Additionally, consideration to forming or joining a captive insurance company to allow more control over insurance costs and coverages. These alternative options would be viable for those businesses with financial capacity with favorable risk profiles and loss histories or predictable risk profiles.

As the hard insurance market continues to evolve, it is essential for CFOs and other business leaders to stay informed and proactive in their approach to managing insurance renewals and risk mitigation. To gain further insights and practical strategies, join me on Seubert’s upcoming virtual panel on July 17th at 10am. I will lead discussions with fellow industry leaders that will delve deeper into these topics, helping you navigate this challenging landscape and optimize your financial outcomes. Reserve your spot today!

Richard Mansfield, CPA, plays a dual role for Seubert as the agency’s Chief Financial Officer and Chief Operating Officer. He joined Seubert in 2019 and has 30+ years of financial industry experience. In his current role, Richard oversees the organization’s financial management and strategic planning while also managing operational activities to ensure efficiency and effectiveness in achieving business goals.

Contact Richard to see how you could minimize risk.
412.223.1417  |  [email protected]  |  LinkedIn

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