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Inflation and Jury Awards Continue Driving Insurance Premiums Upward
Posted by DSD Insurance an Acrisure Agency Partner on
Inflation is not just affecting the cost of food and fuel. It’s also spilled over to the price of practically every industrial item, as well as building materials and services.
Anyone running a business, particularly one that carries inventories or has to invest in machinery or electronics, has seen prices increase faster than wage inflation in a red-hot job market with strong economic expansion.
All of that inflation, however, is causing higher insurance costs, largely due to the increasing cost of claims in almost all areas of coverage.
On top of that, jury awards for both third party injuries and employees filing discrimination, harassment or other employment-related lawsuits are also on the rise.
Additionally, the cost of adjusting and managing claims has jumped nearly 20% in the last year, according to a recent American Property Casualty Insurance Association (APCIA) report.
A survey by The Council of Insurance Agents & Brokers found that in the second quarter of 2022, businesses were paying on average 6.1% more for their commercial insurance policies than they were during the same quarter of 2021.
But rates will vary between regions as well as business sectors. Companies in areas at high risk for natural disasters are seeing higher rate hikes than those in relatively calmer areas. Additionally, some states have higher jury awards than other states. The only thing you can count on is that costs are definitely rising.
Commercial insurance policies are seeing the most noticeable increases in claims costs. Those claims, in turn, drive up insurance policy premiums. For example:
Commercial auto — Auto insurance is feeling pressure on two fronts: the cost to repair vehicles and liability costs reflecting rising jury awards and medical costs for injured third parties. The average rate hike for most commercial auto policies was 7.2% in the second quarter of 2022, compared to the same period in 2021.
According to the APCIA report: “The frequency of attorney representation in commercial auto claims has been increasing, and the relative costs of resolving claims are significantly higher for claims with attorney representation, including taking considerably longer to resolve for consumers.”
Repair costs have increased substantially, adding to the overall upward trend in the cost of settling claims.
General liability — General liability insurance is affected by many of the same legal trends that affect commercial auto policies, including the number of large “nuclear” verdicts in lawsuits. These verdicts can be in the tens of millions of dollars, if not more. Settlement costs and legal fees will increase as well, adding to the steadily rising costs associated with settling claims for insureds.
According to the APCIA, insurance industry losses for commercial general liability coverage have skyrocketed more than 57% since 2017. According to the agents’ and brokers’ council, rates increased an average of 4.7% in the second quarter of this year.
Commercial property —Construction costs have skyrocketed in the wake of unprecedented building material cost increases, a labor shortage in the construction industry and supply-chain constraints, leaving contractors short of materials to complete jobs.
Between December 2019 and December 2021 the price of construction materials rose 44%, with some lumber prices up 400% in the summer of 2021.
Rates in the second quarter increased 8.3% from the second quarter of 2021, and while that rate is high, it’s compared to average rate increases of 10.3% in the fourth quarter of 2021.
Cyber — The cost of cyber insurance is climbing 25% a year, thanks to increasing cyberattacks, increasing costs of ransoms demanded by ransomware criminals and rising cyberattacks on business interruption costs, according to the agents’ and brokers’ council.
Another factor affecting the cost of cyber coverage is capacity (not enough insurers in the market). Also, insurers are raising deductibles and offering more restrictive terms to reduce their overall risk exposure.
With rates continuing to increase, it’s imperative that you take steps to manage your risks and reduce the chances of being sued, whether that be by third parties or even your own employees.
It means having your internal policy procedures geared toward reducing the chances of discrimination (based on disability, race, sex, sexual orientation, etc.) or harassment lawsuits being filed by your staff. It also means regular safety training for your workers to reduce the chances of customers, the general public or vendors that come onto your property being injured and suing your business for their damages.
Finally, it means taking steps to reduce the chances of your business being affected by a natural disaster. Mitigation or “risk management” steps will vary depending on the types of threats your business may face.
Final Thoughts . . .
We’re living in unprecedented times. Between Covid-19, Inflation, Geo-Political instability (e.g. the war in Ukraine), massive layoffs of thousands of employees by companies like Facebook, Microsoft, Twitter and the like make the future arguably more uncertain than many of us have ever seen in a long, long time.
While no one has a “crystal ball” and knows what the future will bring, it’s best for you to assume that things will be different in the future than they’ve been in the past.
Regardless of what the future holds for you, DSD Insurance is here for you. We are your insurance partner. We’ve been in business continuously for almost 40 years and plan to be here long into the future as well.