The Insurance Market That Is Coming
As we know, everything out there today is cyclical; and insurance is no exception. In the go-go years of 2004-2006, when this country was busy building houses, apartments, and commercial projects at a breath-taking pace, there was quite an uproar in commercial insurance rates because everyone was so busy they could hardly keep up. As they say, that was then, this is now. Rates for the past five years have dropped somewhere around 50 to 60% from their peak in 2006. I can remember writing a new one-man roofing operation in 2006 for almost $8,000, and today it is around $4,000. While that is about half of what it was, the Property & Casualty insurance market is starting to turn to a harden state. Many insurance companies are scaling back on what areas of the market they want to be in, and many more are not looking at companies with less than three years of previous insurance coverage and as loss free as possible. Also, coverages that were included in previous years, now are either excluded or there will be a premium charge for that coverage. In talking with underwriters and carriers across the country, the vast majority see rates trending up in the area of eight, to as high as fifteen percent, in some cases. In fact, they are saying it’s extremely rare if a renewal rate is priced lower than last year. We all know the terrible disaster that just hit the east coast, called Hurricane Sandy, and the destruction that it caused. Some reports estimate that damage could be as high as ten to twenty billion dollars, and the probable truth is that we won’t know the true costs for years to come, and it may even be higher. This is in addition to the numerous natural disasters that have happened around the world and especially here in the U.S. The one constant thing I hear from my Arizona clients is that those disasters are nowhere near us, so why would they affect our rates at all. Aren’t we the “Valley of the Sun”, and nothing ever happens like that? Truth is, insurance is a shared risk, and we all share in the good insurance risks and the not so good ones. Also, when I mention the incredible hail storm that happened a couple of years ago, most clients say it really wasn’t that bad. In fact, estimates for all the claims that were filed from roof damage to vehicles being totaled were in excess of two billion dollars. Not exactly a small amount of losses after all. Also from the go-go years of building as many homes as possible and repairs that were not done quite up to code, those lawsuits are starting to come in at an alarming rate. In fact, recently in Arizona, one homebuilder was ordered to pay damages in excess of thirteen million dollars. Now, while the final settlement cost may be lower, the legal fees will run into the millions, and that won’t go away; they will be paid by the insurer.
Another area where rates are going to rise this year, and, in fact, they have been rising for a couple of years is the workers’ compensation market. Nationally, conditions in the workers’ compensation marketplace have continued to deteriorate. This is mostly attributable to poor underwriting results, declining premiums due to decreased payrolls, an increase in claims frequency, and an uncertain regulatory environment in many states. The combined ratio meaning losses plus expenses/premiums have increased five points in 2012 to 115, which is the highest it has been since 2001. Unless there is a huge surge in employment adding to the depleted worker’s comp reserves, rates will continue to stay high, and, most likely, go a little higher.
What this means is, if you currently have insurance, do not let it lapse! Continuous coverage, hopefully with no claims or very few, means you are a good client and companies are looking for that type of client. By having continuous coverage and no claims, you may get to keep your premium, at the very best, flat, or with a small increase. Those companies that do have a lapse or new companies in business can expect to see their premiums at the higher end. Insurance carriers are becoming more selective about which new clients they will cover.
To ensure you are getting the best price with the right coverage you need, sit down with a seasoned professional agent, and go over all your options to ensure that you have done all you can to contain your insurance costs. We, here at PJO Insurance Brokerage, would welcome the opportunity to create an AZ business insurance plan for you and your company.