The costs of business insurance continued to increase during the second quarter of 2022, though the rate of increase has slowed somewhat in the previous quarter, based on a survey by Willis Towers Watson, an international risk management, insurance brokerage and advisory company.
Wills Towers Watson’s Commercial Lines Insurance Pricing Survey compared prices charged throughout the second quarter of 2022 with those charged throughout the same quarter in 2022, and found that prices had risen by just above 6% on average.
The survey established that almost all insurance lines were more costly. The largest increases were for excess/umbrella lines, while commercial auto, property, and directors' and officers' liability increases were also near or over double digits.
In contrast, workers comp showed a slight decrease in price.
CLIPS is really a retrospective take a look at historical changes in commercial property & casualty insurance prices and claim cost inflation. For this newest survey, 41 participating insurers representing some 20% of the U.S. commercial insurance market provided data.
Commercial insurance is one more area where costs are rising for repair centers. Paint manufacturers, for example, have announced sizable price increases in the last many months because of “unprecedented” rising costs for recycleables, while inflation has lifted consumer prices by 5.3 percent in the past Twelve months.
For some perspective around the insurance price increases, Repairer Driven News spoken with Alex Whittit, Client Relationship Manager with Intrepid Direct Insurance, which focuses on auto repair garage insurance.
Whittit explained which costs are now being driven by a few factors, which, unfortunately, lie beyond the charge of shop owners who're facing higher bills. Those drivers, he explained, include larger awards by juries; a rising frequency of catastrophic storm losses; inflation; and historically low interest rates.
“Unfortunately, there isn't a lot collision shop owners can perform,” Whittit said. “They are able to look at larger deductibles on various lines. Loss experience is the biggest driver of cost. Most these owners posess zero large amount of claims, but obviously, the fewer claims you have, the low your premium ought to be.”
Jury awards
In recent years, attention continues to be focused on so-called “nuclear verdicts,” jury awards of $10 million or even more to wronged parties. Inside a July 29, 2022 article in Claims Journal, writer James Butler cites data from VerdictSearch that indicates the amount of such verdicts has quadrupled since 2022.
Repairers are very well familiar with the 2022 John Eagle Collision case, in which a Texas jury found that the shop's incorrect repair was liable for a lot of the seriousness of the crash of the 2010 Honda Fit, and awarded the pair injured and trapped within the burning vehicle $42 million in damages.
The Dallas-based shop was found responsible for 75 % from the couple's ordeal and also the $42 million verdict the jury passed down Monday, for any total of $31.5 million in damages. The Dallas County jury attributed another 25 percent of the culprit to another driver.
The case, which involved using adhesive to secure the rooftop of a Honda Fit when Honda specified welding, underscored the need for repairers to follow along with OEM repair procedures to protect their customers safety, despite insurers’ pushback.
An article legally firm White and Williams LLP on JD Supra, a publishing platform for that legal profession, notes that some recent 10-figure verdicts include “an $8 billion verdict against Johnson & Johnson for Risperdal, a schizophrenia drug; a $2 billion verdict against Monsanto for its herbicide Roundup that the court subsequently reduced; a $1 billion verdict associated with workplace negligence against HACC Pointe South, Inc.; and another verdict against Johnson & Johnson for $4.7 billion related to the talcum powder products.”
Jurors typically see such major awards in an effort to punish defendants for behavior that threatens the general public safety in some egregious way. However, the amount and size such awards can result in higher rates for others within the coverage pool.
Catastrophic storm losses
The total U.S. insured losses from Hurricane Ida fall somewhere between $31 billion and $44 billion, based on an estimate from Risk Management Solutions Inc. Which includes $6 billion to $9 billion in insured losses within the Atlantic states, and $25 billion to $35 billion for that Gulf of Mexico region.
Ida only agreed to be one of many extreme weather events that have filled the headlines. Inside a Sept. 7 report, NPR noted that weather disasters have become 5 times more prevalent in the last 50 years, driven by climate change.
“The United States has incurred the largest economic losses from weather-related disasters,” the network reported. “The five costliest disasters are hurricanes that made landfall in the U.S. in the last 2 decades, led by Hurricane Katrina in 2005, which inflicted an estimated $164 billion in damages and killed more than 1,800 people. The 2nd, third and fourth costliest storms all occurred in 2022: Hurricanes Harvey, Maria and Irma.”
This past spring, the government Emergency Management Agency rolled out its initial update in 50 years towards the way it sets insurance charges for property in flood-prone areas. Based on Reuters, “The agency said that, within the coming year, it will phase in a price-setting method that marks an epochal shift in the National Flood Insurance Program, that was placed in 1968 to pay for property in flood-prone areas.
“New premiums depends on the property's value, risk of flooding along with other factors, rather than simply on the property's elevation inside a flood zone. They'll work on Oct. 1, 2022, for brand new policies and April 1, 2022, for that rest, FEMA said.”
“If you're situated in a hurricane zone,” Whittit said, “insurance is getting very expensive.”
Inflation
In August, inflation accelerated at its fastest pace in about 13 years within the U.S. as the post-pandemic economic recovery gained steam, the Labor Department said. Annually, prices increased 5.3%.
Pent-up demand, and cash accumulated by Americans during Covid, have contributed to spikes in prices for a number of consumer goods. One of the most notable trends has been the spike within the list price of lumber and other building materials, which soared by 323% in the spring before settling down somewhat.
Rising retail prices implies that many insured items could be more expensive for replace if they’re damaged or destroyed. For smaller businesses, this means that it may be time for you to reassess their property insurance coverage.
“Replacement value is the cost to rebuild parts, or perhaps your entire building. It's influenced by the development industry's supply of contractors and value of materials at the time of rebuild,” Whittit said in an Aug. 24, 2022 guest column in RDN. “Replacement value isn't the just like market price. Market value is generally regarded as the cost you could sell your home for. It's in line with the current worth of other properties in your town that are similar in dimensions featuring and is affected by the competitiveness of the buyers' market.”
Interest rates
In general, insurance companies earn profits by taking in additional money in premiums compared to what they shell out in claims. But they also invest the premiums they collect, while using returns to boost the conclusion, and to make premium reductions possible.
Insurance companies have a tendency to purchase bonds, which are generally a smaller amount risky than the stock exchange, with its possibility of volatility. The returns from bonds are usually pretty steady, too, making an insurer’s financial picture easier to forecast.
Unfortunately for insurers, the text marketplace is seeing some historically low interest. By Friday, the interest rate for any 10-year U.S. Treasury note is simply 1.376% — up from 0.701% a year ago, but nonetheless relatively low.
“Insurance companies invest the premiums they collect in ‘safe’ investments like bonds to make money off them while holding the main city,” Whittit said. “In theory, an insurance company making 5% on every dollar they collect could shell out $98 of $100 and still turn a profit, but when they're only making 1% percent now-.”
Economics 101 teaches the bond rate is linked to the performance of the stock market, with investors shifting from stocks to bonds in downturns, and vice-versa in boom times. Economically, the good thing is the relatively weak bond market is another manifestation of a powerful Dow.
