Understanding What Goes Into
Business Insurance Rates

August 9, 2013 – Phoenix, Arizona

One of things I hear the most is “Why did my insurance premium go up?”, or “Since I have never had a loss, why didn’t my insurance rates go down this year?”

Patrick O’Neill Explains What Goes Into Arizona Business Insurance RatesThese days, clients are inundated with all forms of insurance commercials promising outrageous discounts, or they get a flyer or a phone call promising more of the same, which rarely ever actually comes to fruition. The truth is that rates all across the board have, for the most part, risen anywhere from six to fifteen percent this year, and after about five to six years of a “soft” market, we are starting to see the market turn “hard”.

Arizona business insurance rates are based on many factors, and here are some to help you understand how rates are determined. As everyone who has investments can attest to, government bond rates and mortgage rates have hardly ever been as low as they have been for the past few years. It almost seems like you have to pay the banks to take your money instead of the other way around. In years previous to this, when government rates were in the five to seven percent range, insurance companies were able to park a percentage of their premiums in these bonds to offset the claims they were paying out, which, in turn, helped keep rates low.

Now with government bonds yielding barely one percent, they no longer have that cushion to help with insurance claims. As I always tell my clients, insurance is a shared risk, even if your record is spotless, you share space in the insurance world with those do have claims, and many times those claims are just unfortunate accidents. Let me give you an example. Recently, one of my clients turned in a fairly large-sized claim. Just a few months before that, he was commenting on his renewing insurance costs and how he had never had a claim, and he couldn’t understand how his insurance premium increased about five percent over the previous year. As sometimes client do when they receive an increase in premium, they want to maybe lower their limits, alter or delete coverage, or hike up their deductible because they are convinced that they will never use their insurance coverage. After sitting down with him, we reviewed his coverages in detail, the carrier, and the costs, and he agreed to renew for another year, but he was still hoping that maybe next year, he would see some relief. Well, as luck would have it, about 3 months after his renewal, his crew had an accident. They had tightened a cap a little too tight, and over the weekend, it had burst and flooded the bathroom above the kitchen in his client’s home. By the time it was discovered, the damage was quite extensive. The final claim was in excess of $90,000. Who can predict what the outcome would have been had he altered his coverage. Needless to say, he was thrilled that he didn’t.

Another area that clients tend to overlook is all the natural disasters that have happened over the past few years. Remember the utter destruction that happened to the Jersey Shore and surrounding areas? Insurers are still paying claims in that disaster and the final tally could see anywhere from $5 billion plus being paid out. Also, other recent disasters were the tornadoes in Oklahoma, which hit the same area only weeks apart, and for which claims are still being filed, and, according to a recent article, those claims will easily exceed $3 billion. Now, these are just a few of the natural disasters that have happened across the country during the past couple of years, and there have been many more disasters which resulted in large sums being paid out by the carriers for claims. As I have stated earlier, there are many factors that go into current insurance rates. We have only touched on a few, and some other factors carriers take into consideration include the type of work you perform and risks associated with that work, where you conduct business, years of experience in your field, and your previous insurance history.

We invite you to contact us and discuss your options whether you are looking at reviewing and replacing your current coverage or you are starting a new business. We have many options and coverages to help you design your insurance program.

Written By: Patrick O’Neill – Owner