Looking Ahead to What’s in Store
for the Insurance Market
December 10, 2012 – Orange County, California
Over the years, those of us that have been in the industry longer than ten years have experienced both a hard insurance market, and, over the recent five to six years, a soft market. In the early years, from around 2002 to mid-to-late 2006, the market was hard, business was humming along, there was a shortage of qualified labor, and general liability was higher than it was in the years 2007 to mid year 2012. Over these past 5 years, commercial insurance rates dropped anywhere from 40% to 50%, and, in some classes, it may have dropped even more. Over the past couple of months, and in talking with several underwriters from various insurance companies, the tide is starting to turn and rates are trending higher. Most of the increases in rates are in the 5 to 8 percent range, but some classes are seeing a rate increase as much as 15+ percent. Another factor affecting rates are insurers’ decisions to no longer provide insurance for certain classes of risks. This is very evident in the construction field. Many carriers are no longer insuring these classes, and that, alone, will contribute to higher rates. Also evident is that certain coverages that were once included in the previous policies are now, either added with an additional premium charge, or those coverages are no longer offered in many cases.
As we all know, insurance is a shared risk. Along with the clients who have spotless records, there are those with a not-so-perfect record in their classification, and that is what contributes to determining rates. Another item that determines rates is natural disasters–from the tremors that shake California from time to time, to the most recent unfortunate event that hit the East Coast, called Hurricane Sandy, and the numerous natural disasters that have occurred, not only in the USA, but in regions all over the world. There have been estimates on what the costs will be for this latest natural disaster, and those costs have ranged from a low of ten billion dollars to as high as thirty billion dollars. We probably won’t know the true cost of Hurricane Sandy for years to come, and the final tally could even be higher. A familiar phase I recently have heard is “But I don’t live anywhere near the Jersey shore, how could this affect my rates?” Truth is many companies that write coverage in Orange County, CA also have divisions that write on the coasts, whether it’s the Jersey shore or the shores off Florida, which have been hit hard these past few years. Again, insurance is a shared risk, and everyone shares in these huge losses. Another area in which we are seeing an increase in claims is from the enormous building boom that California, as well as many parts of the country, enjoyed from 2004 to 2007. Homes were going up at an alarming rate, and attention to detail was sometimes overlooked due to pace of sales and the desire to build and sell as many homes as possible in a short time frame. Due to this, claims for workmanship of those homes are on the rise. In addition to just the cost of redoing the work that was done, millions of dollars are being spent initially for legal expenses on these claims.
An area that is of concern to almost every business in Orange County, CA is Worker’s Compensation Insurance. Rates in most classes have gone up this past year, and it appears that they are going to go up even higher. Some of the reasons for these rates going up are a decrease in the number of employees working with decreased payroll amounts resulting in less premiums being paid into the workers’ compensation funds plus the substantial increase in claims and benefits being paid out over the past few years. Some of the carriers combined ratios, losses plus expenses/premiums, have increased five points in 2012 to 115, which is the highest it has been since 2001. The only way comp rates will retreat, if at all, is if we start to see some real progress in employment rolls, and, according to the experts, they don’t anticipate this happening in the near foreseeable future.
One thing that may help clients who are currently insured is to have no lapse in coverage with no claims filed against them, or if there was one, a minor claim. Insurance carriers are looking for the cream of the crop, so to speak.
This means they will compete for those types of clients, keeping their premiums close to their current state with only a small increase. Those companies that do have a lapse in coverage, large or frequency of claims, or new companies just starting in business can expect to see their premiums at the higher end of the spectrum. Insurance carriers are becoming more selective about which new clients they will take on.
To make sure you are getting the best price with the proper 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 insurance plan for you and your company.
Written By: Patrick O’Neill – Owner
107 Via Estrada, Unit A
Laguna Woods, California 92637
Category: Commercial Insurance