The business climate for the insurance industry could change dramatically in 2001, according to John Folsom, president of Raleigh, Schwarz & Powell, Inc., a Washington State-based insurance consulting firm.
Folsom is predicting more intense competition and higher operating expenses. The past decade, he said, was marked by a “buyer’s market” and remarkably low premiums. But all of that, he said, is changing.
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Folsom’s predictions and some guidelines include:
Look for workers’ compensation insurance costs to rise. While situations differ in various parts of the nation, workers’ compensation insurance costs are poised to take a bite out of many companies. Businesses cannot afford to be complacent. What’s happening in California is particularly significant. Premiums in the state are up 25 percent to 40 percent in many workers’ compensation categories and some analysts are suggesting that even with such major increases, they will be lagging behind by another 25 percent to 40 percent. What is happening in California is not an isolated instance. The same scenario is being played out in other states. Guideline — Get serious about preventing injuries. Effective loss control is the best way to take charge of workers’ compensation costs.
Insurance market changes are on the way. The insurance industry has gone through what is called a “soft market,” as insurance carriers have bid down to premiums in an effort to gain market share or enter new industries. Underwriting losses during the last decade — including those involving catastrophic natural disasters — were more than offset by investment income derived from the performance of the stock market. Year after year, someone would step up with a lower price. It appears, however, that underwriting losses are far less acceptable than they were in the past and pricing strategies will be reflecting this change. Guideline — Explore with your insurance broker more efficient ways to manage your company’s risks. This can include loss control services and investigating risk-sharing possibilities.
Higher building costs reflect a tight construction insurance market. Once again, the construction industry has benefited from premiums that have been deliberately priced below underwriting costs. Currently, in the Northwest for example, the construction insurance markets are very tight…Surety bonds an essential ingredient in bidding public jobs, are undergoing change as well. A combination of more frequent and catastrophic losses and consolidations in the surety industry are starting to narrow product availability. Guideline — Building owners should be prepared for rising construction costs.
Cultivate a positive relationship with your broker and insurance carrier. In the last decade’s frenzy of low and lower premiums, many companies broker a pattern of longstanding broker relationships as they made annual moves to obtain lower prices. Now, many insurance carriers are walking away from certain industries and there’s a narrowing of the available markets as a result of consolidation. Relationships count in insurance and risk management Brokers can only serve as your effective advocate to the insurance carrier if they have an in-depth understanding of your business. It takes time to build this level of understanding. Guideline — Review and evaluate your insurance broker and carrier relationships.
Take a close look at your insurance carrier’s financial stability. Again, the combination of premium “under-pricing,” reduced investment income, and large claims due to catastrophic losses is catching up with certain carriers. Financial soundness ratings are changing. Guideline — Be prepared to change carriers should a company’s rating change.
Help employees understand your company’s health care program. Over the past decade, managed care helped wring out health care costs. It was inevitable that costs would again go up. They have and that will continue. Look for double digit increases over the next two to three years. There are many factors contributing to higher prices. They include legislative and/or regulatory mandates, a demand for a broader range of choices, the development of new medications, and the introduction of new therapies. Also, doctors and hospitals are negotiating more rigorously than ever for higher reimbursement levels in their contracts. Many employees lack an even rudimentary understanding of the basic concept of insurance. For example, spreading risk over a particular group, and the many factors that impact cost. Because health care insurance is widely misunderstood, employers are finding themselves the targets of employee discontent. Guideline — Make a concerted and continuing effort to inform employees about your health care program.
Take charge of purchasing your insurance. Risk management, like everything else in business, requires taking charge of the process. The insurance market has moved away from a decade-long period of predictable conditions and low premiums to one of dramatic changes in both markets and costs. Several ways to manage the new situation include working with a broker who keeps you informed throughout the year; don’t panic — despite fluctuating financial ratings; with a broker, analyze carefully the coverages you require; and remain flexible, because it may turn out that the best approach is to make multiple placements for your insurance. Guideline — Expect a high level of expertise from your broker and continuing communication over the course of the year.
