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Your P&C Insurance Is Getting More Expensive. Let Us Explain Why.

Your P&C Insurance Is Getting More Expensive. Let Us Explain Why.

November 12, 2019

Catastrophic Events

Over the last three years, natural catastrophes have cost the U.S. economy hundreds of billions of dollars. Of those catastrophic losses that occurred in 2017 and 2018, it is estimated that around $130-140 billion of it was insured. This means that insurance companies and reinsurance companies have seen their underwriting profits shrink, so they are going to (1) correct rates and pricing to regain margins, and (2) be more conservative with how they deploy capital. This conservative underwriting approach means you may experience increased deductibles and self-insured retentions, more stringent risk control and mitigation requirements, and less capital being deployed for high excess liability/ umbrella programs.

Litigation Trends

“Nuclear” legal verdicts, where an award of $10 million or more is reached, have seemingly become the norm. The tort environment is worsening, and as a result, insurance carriers are paying-out high-dollar claims. One source indicates that the median average of the 50 largest verdicts in the US nearly doubled – from $27.7 million to $54.3 million – between 2014 and 2018.

There is a general shift in American society toward mistrust of corporations. This mounting cultural pressure makes insurance carriers squeamish to insure, for example, a large retailer with a mass shooting exposure or a utility contractor with a wildfire exposure. Sympathetic juries have proven to support getting the most out corporations as they possibly can. The reaction from insurance carriers is the same as mentioned above – to proceed with caution and remain conservative. In addition to being more stringent in underwriting, we’ve seen insurance carriers completely exit from providing insurance for certain high-severity classes of business such as flammable product manufacturers, demolition contractors, truckers and railroad operators.

Auto Liability

Distracted driving persists. The cost of auto repair is climbing. Medical costs for injured persons continue to skyrocket. Insurance industry statistics show that both claim frequency and claim severity have seen double-digit increases over a 10-year period between 2009-2018. Auto insurance premiums have seen a nearly 58.5% increase over that same period. By comparison, the cost of hospital services has increased 57.7% during the same ten years. Beyond that, historically unprecedented jury awards have been paid out by insurance carriers on behalf of businesses with commercial auto exposures. The pricing correction in Auto insurance is likely to stick around for a while, as insurance carriers remain pessimistic about their books of business.

What can you do?

As an independent broker working with multiple insurance carriers, keep in mind that we don’t set the rates and pricing for insurance policies – the insurance companies do. The best way we can impact pricing is to work with our clients on what they can control, through sound risk management practices. A few ideas to lessen the impact of a hardening insurance market would be:

  1. Review how you are Financing Risk: If the costs to transfer risk via insurance are going to continue to rise, what are you doing today to budget for and prepare for these increased expenses? Could you explore higher deductible options, or self-insurance in certain areas? If you are consistently out-performing your peers from a claims standpoint, it may be time to consider alternative risk financing options such as a group captive.
  2. Establish a Risk Management Committee: We consult with our clients on Enterprise Risk Management (ERM) programs, and ideally participate regularly in committee meetings. These committees create an opportunity to identify and assess top risks, to prioritize risks, to implement response strategies and then to monitor the success of those strategies. An ERM program creates a synergy and accountability in any organization.
  3. Start with Work Comp: Workers Compensation represents one of the few areas of insurance where the business can directly impact how much they pay through their Experience Modification Rating (EMR). Know what your minimum EMR is for your industry, and work with us to set some attainable goals to maximize the amount of credit you can receive. Work Comp losses are usually symptomatic of an overall cultural issue or accountability issue, so starting here will help identify some root issues. Once fixed, it will create multiple areas of positive impact and lower the total cost of risk for an organization.

We arm our clients with current insurance market information to help them make better decisions. We educate our clients on their potential risk finance solutions, because ultimately, our mission is to make their business stronger. When we do that well, our clients view us not just as an insurance agent, but as a business partner who is invested in their success.

By: Adam Balentine
Director of Insurance Operations

Category: Commercial Insurance, Personal Risk