Insurance Rate Increases: Fact or Fiction?

The insurance industry has been bemoaning inadequate rates for the last several years. However, with the nation's fragile economy, rate hardening was seen as impossible without a significant loss of market share. Now comes several data points that trumpet an incipient wave of rate increases.

Broker Marsh recently published a report that heralded liability insurance rate increases for construction firms of up to 15% on standard business, with even larger rate increases for companies with poor loss histories. Along with primary liability insurance policy cost increases, umbrella excess liability insurance is going up about 8%-10% on average.  

It seems that the long period of soft pricing has finally caused many insurance companies to invoke higher premiums upon policy renewal, and for new incoming risks. However, it was also announced that the market pricing was still very competitive for organizations with good loss histories, and a trend of well managed risks.

WC was mentioned in the report as a market that “has been relatively stable for good quality risks.” But it was noted that in states that have generally poor combined WC ratios, rate increases will most likely be sought.

On the heels of the Marsh report, Travelers CEO Jay Fishman noted that his organization was continuing rate strengthening. Travelers' business insurance premiums (which should involve WC) were up about 7% last quarter, on top of a 7.7% increase the prior quarter. But personal lines coverage such as auto insurance and homeowners' coverage, are also on the increase. It seems the historically low interest rates, combined with low premiums, are finally starting to have an impact on pricing.

Does this mean “the party is over” for WC risks that have enjoyed relatively low premiums now for many years? More than likely, though the bar is still open and last call hasn't been announced yet. Comp premiums will most likely gradually increase as insurers seek a profit on a line that has seen more than its share of combined ratios in excess of 100% over the last two decades.

However, even with rate creep, well managed employers with experience modifications below 1.0 will still experiencing competitive pricing. However, less well managed employers will more than likely witness steep rate increases in their WC premiums. This is nothing surprising. What catch some employers by surprise is that their loss history is going to start to count more and more as policy pricing becomes ever more sensitive to insurance carriers who expect to make a profit underwriting WC risks.                

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About the Author:

John D'Alusio has over 30 years experience in P/C insurance with executive management positions in administration, field operations, and claim technical areas. Mr. D'Alusio has had many articles published in industry periodicals, and is also a contributing author to the LexisNexis published, “Complete Guide to Medicare Secondary Payer Compliance.”  He writes a monthly column for Risk & Insurance Magazine and is a quarterly columnist for AMComp Magazine.

His Risk & Insurance column is located at:
http://www.riskandinsurance.com/workerscomp.jsp

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