Unfortunately, most information within the property and casualty insurance industry right now is not positive. Overall we are headed deeper into a “hard market” where there is a consistent increase in renewal premiums, tightening of underwriting guidelines and decreased coverage offerings. As one of your most expensive budget line items, here are four reason why insurance premiums are increasing.
Social Inflation
Quite possibly the greatest contributing factor is the sharp uptick of social inflation. This factor is the increase in insurance losses caused by influences such as higher jury awards, more liberal treatment of claims by workers' compensation boards, legislated rises in compensation benefit levels and new concepts of tort and negligence. Casualty (liability) losses are often becoming catastrophic, with extensive judgments handed down by judges and juries.
Economy
Another factor is the concern of inflation and potential recession. Utilizing collected premium dollars, insurers make most of their profit from investment activities. For every dollar in premium received, the majority goes toward claims and expenses (e.g., payroll, taxes, office expenses, advertising). Often, insurers actually pay out more than they receive. The investment piece allows them to make a profit and thus stay in business.
Carriers are increasing their focus on controlling loss ratio (losses ÷ premium) and reducing their loss combined ratio [losses ÷ (premium + expenses)]. This results in increased premium, greater scrutiny on unprofitable risks, lower interest in writing new coverage for high-risk clients and less interest in extending high casualty limits.
Auto Exposure
While new vehicle technology can have benefits, seemingly minor damage from an accident can prove to be quite costly. Further, distracted driving has dramatically increased the frequency of accidents. With a shortage of Commercial Driver’s License (CDL) drivers, new drivers are oftentimes being rushed through certification and put behind the wheel of large, dangerous vehicles before having the appropriate experience and training.
Disasters
Natural disasters (e.g., fires, flooding, hurricanes) have dramaticaly increased within the past several years. These events not only affect the areas hit but also impact how insurance companies provide future coverage. Property lines, particularly those covering unprotected structures, frame construction with habitational exposure and coastal exposure are the coverages most influenced by disasters. With disaster come increased claims. A huge number of unanticipated claims could have big impacts on costs, now and into the future.
While an increase is premiums is likely, there are steps you can take to navigate the hard market. Reach out to your insurance advisor for recommendations on options to minimize the negative impact to your premiums and your bottom line.
Patrick Buck, Risk Management Advisor
CBIZ Insurance Services, Inc.
[email protected] | 301.784.2375