After more than six years of decreasing insurance premiums and broadly available coverage, commercial insurance rates have reached bottom and are beginning to increase, while coverage terms and conditions are diminishing.
“Now is the time for business owners to focus greater attention on their property and liability insurance programs and take steps to minimize the impact of these coming changes,” says Philip Glick, senior vice president at ECBM Insurance Brokers & Consultants.
Smart Business spoke with Glick about what a tighter insurance market means and how businesses can handle these changes.
What happens when insurance premiums rise?
Historically when premiums begin to rise, coverage terms and conditions also are generally scaled back. Many of the broad coverage terms and conditions that have been readily available during the past few years are becoming more difficult to maintain.
What are other indications of a tighter market?
Many insurance companies have begun to slow down the adjusting of property insurance losses, particularly with respect to the business income portion of claims. Property claims that historically could be adjusted in three to six months are often taking more than a year to close out. Property insurance companies also are routinely bringing in forensic accounting firms to pick apart every line of income and extra expense claims, often delaying the adjusting process by as much as a year.
Insurance companies are routinely denying coverage for additional insureds under the general liability policies of those they cover. For example, there are extensive delays for landlords getting acceptance of coverage for claims filed by people injured at their tenants’ premises. This is also occurring when general contractors ask for coverage for claims by their subcontractors and property owners are seeing delays in obtaining coverage for claims filed against them from construction site injuries for work done by general contractors.
During the past several years, insurance companies have been imposing coverage restrictions. As an example, insurance companies will not provide contractual liability coverage nor extend additional insured status to another party for the sole negligence of that other party under the commercial general liability policies they write for contractors to extend coverage to building owners.
There’s a push for higher windstorm deductibles on property insurance coverage written for clients with properties not just on the Florida coast, but in areas 30 to 40 miles from the coast, including large parts of New Jersey, southern Connecticut and Massachusetts. They are imposing deductibles as high as 2 to 3 percent of insured building values for windstorm losses.
What can employers do to mitigate these changes to property and liability insurance?
As business owners, you can take a number of proactive steps now.
- Take control of adjusting new property loss, including setting strict timelines and strategies soon after the loss occurs. Then closely monitor progress from the initial claim report until the final closeout and payment.
- Demand that your vendors, contractors and suppliers provide the required additional insured coverage needed and get confirming renewal certificates of insurance. Copies of the appropriate additional insured endorsements should back up these certificates on the supplier’s renewal insurance policies to verify that the additional insured protection is extended to you.
- Push back aggressively on your contractors, suppliers and vendors to be sure their insurance companies promptly accept the tender of any claims from your company under their general liability insurance policies.
- Carefully evaluate the detailed terms and conditions of the renewal proposals for every insurance policy you purchase. In addition, scrutinize the renewal coverage provided to you by your vendors, contractors and tenants to be sure the renewal is as broad as the prior coverage you relied upon.
- Meet early with your insurance broker or agent to get an early warning of any likely changes in coverage terms and conditions and premium increases. Also, request your renewal insurance proposals as early as possible including getting several optional quotes for each major insurance policy to have choices available to help mitigate any rate increases of attempted coverage restrictions.
- Get renewal proposals including higher deductibles on property coverage, and also including optional deductible quotes on your general liability insurance renewals, as ways to reduce renewal premium increases. Likewise, get quotes with higher automobile physical damage deductibles.
- For larger businesses, consider renewal workers’ compensation proposals that include deductibles or retrospective (cost plus) rating options if your current policy is written on a guaranteed cost basis.
- Increase your umbrella liability, directors’ and officers’ liability and other liability policy limits now if your current coverage limits are too low. Similarly, increase your insured property and business income values to adequate amounts while you can still negotiate reasonable property insurance renewal premiums before rates move up further.
- Attempt to lock in renewal premiums and coverage terms and conditions now for a longer term. Many insurance companies are still willing to provide 15-month or 18-month terms and, in some cases, even 24-month policy terms and conditions for clients with good loss experience and a strong financial position. During the past few years, many insurance buyers didn’t pursue longer-term policies believing that they could obtain lower rates on renewals as the market continued to soften.
- Evaluate the responsiveness, scope of services, financial strength and staying power of the insurance companies and the insurance agents or brokers you do business with. Be sure the professionals you deal with will help you implement strategies to properly protect your business through the next few years.
Philip Glick is a senior vice president with ECBM Insurance Brokers & Consultants. Reach him at (610) 668-7100, ext. 1310, or firstname.lastname@example.org.
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After the hit insurance companies took in 2011, businesses should expect changes in the property market for 2012.
“Companies can expect modest upward rate pressure due to severe global property losses,” says Rick Miller, managing director of the National Property Practice for Aon Risk Solutions. “Capacity remains stable and some increased underwriting discipline is apparent, particularly around the peril of flood.”
Risk Management Solutions’ (RMS) latest version of catastrophe modeling software is estimating increased damage impact from Atlantic-based tropical storms from Texas to Maine. Miller says the new software has translated to many underwriters pushing for higher pricing for exposures subject to losses from tropical storms.
Smart Business spoke with Miller and Bill Novak, assistant director of Aon’s National Property Brokerage Group, about what is happening in the property market and what new developments companies should expect to see this year.
What kind of market conditions can businesses expect as a result of recent developments, and who will be most affected?
Businesses can expect a modestly firming property market for natural catastrophe — exposed risks (windstorm, earthquake and flood) and generally flat pricing for all other risks. Windstorm and earthquake are more geographically predictable: Gulf Coast and Eastern Seaboard for windstorm and California and Pacific Northwest for earthquake, while flood-prone areas exist in every U.S. state.
The newest versions of catastrophe modeling software contemplate more severe losses further inland for windstorm than previous models. While global earthquakes have been severe over the past couple of years, the U.S. property marketplace has only been minimally impacted.
Earthquake risk in the U.S. is more commonly associated with the West Coast, but Virginia had a moderate earthquake felt from Washington to Boston this past August. There are seismic areas in the middle of the U.S., as well.
What is behind the firming market?
The biggest driver behind the firming property market and the resulting upward price pressure are insurer-incurred losses and lack of profitability. Most large property carriers suffered significant losses in 2011.
The good news for businesses looking for property coverage is industry surplus or capacity is near historic highs. Buyer demand has been (at best) flat following a few years of a slow economy. Strong supply and lagging demand has maintained a relatively competitive pricing environment despite the recent lack of profitability for insurers.
How quickly will these changes occur?
We saw modest upward pricing pressure the last two quarters of 2011. That’s not to say that if you look at the entire portfolio of accounts that all received an increase. Certainly, accounts that are more challenging from an exposure perspective or those that have had losses have already seen pricing pressure.
Most natural catastrophe property business renews in the first two quarters of the year as these buyers do not want to be in negotiations during hurricane season of June through November. Many large businesses say, ‘I don’t want to be in the market buying insurance if there is a big storm coming.’ You lose negotiating ability and potentially are exposed to reactive market behavior.
The flip side to that argument is that if there isn’t a big storm, you might have a market that is keener to do business; however, most buyers still choose to renew their property insurance in the first two quarters.
How will new developments affect limits, deductibles and coverage?
As far as limits, deductibles and coverage, we expect the market will remain generally stable. Some increase in underwriting discipline is likely to be felt in respect to coverage, limits, deductibles and pricing for commercial flood coverage (not the national flood insurance program).
What new products and services have been developed for the property market, and how can these benefit companies?
Aon has developed bed bug and rent protect insurance products. The bed bug product can provide cleanup/extermination and loss of income coverage to a variety of businesses and has seen the most interest from the hospitality and real estate industries.
The rent protect product can help real estate owners protect their income stream from tenants that default on their obligations.
Rick Miller is managing director of the National Property Practice for Aon Risk Solutions. Reach him at (617) 457-7707 or email@example.com. BILL NOVAK is assistant director of the National Property Brokerage Group with Aon Risk Solutions, Southfield, Mich. Reach him at (248) 936-5257 or firstname.lastname@example.org.
Smart Business spoke with Miller about what is happening in the property market and what new developments companies should expect to see this year.
What is behind the firming market
How quickly will these changes occur?
How will new developments affect limits, deductibles and coverage?
Rick Miller is managing director of the National Property Practice for Aon Risk Solutions. Reach him at (617) 457-7707 or email@example.com.