The commercial insurance rate hikes that have been ongoing since 2017 are expected to continue into this year, with double-digit increases anticipated for most lines of insurance, according to a new report.
The survey of insurance executives by Alera Group Inc. forecasts that commercial rates will increase across all lines nationwide by an average of 11.6% this year.
The rate increases continue a trend that’s been driven by different factors depending on the line of insurance. These range from increased litigation and jury awards, higher property claims costs from a growing number and intensity of natural catastrophes, and higher medical costs for injury claims, to higher reinsurance costs for insurers for extraordinary claims.
The Alera survey predicts these rate increases for key commercial lines:
- Medical malpractice: 17.5% — The increase is being driven by the number of large payouts and the severity of those payouts. Additionally, there has been a shift from an abundance of independent solo or small physician groups to larger groups and hospital employment, which have more resources and hence juries award larger damages due to the perceived deep pockets.
- Umbrella and excess liability: 16.6% — Higher claims costs and larger and more frequent jury awards are contributing to the rise.
- Commercial auto: 14.2% — Distracted driving due to smartphone use has increased the number of accidents resulting in death, and the cost of repairing modern vehicles and medical costs continue rising at rates higher than inflation.
- Commercial property: 13.6% — As the frequency and intensity of natural disasters increases across the country and more buildings are exposed to those catastrophes, insurers are facing an unprecedented number of damage claims.
- Directors & officers liability: 13.2% — Rates are increasing because of investors’ suing boards and officers, alleging poor performance or overly optimistic forecasts in annual reports.
- Environmental: 12% — There has been an uptick in lawsuits filed by individual states against perceived polluters.
- Professional liability: 11.7% — Pricing influences include heightened litigation across a number of industries that purchase this line of insurance.
- General liability: 11.3% — Increasing claims costs and larger and more frequent jury awards are fueling the climb.
- Cyber insurance: 10% — Cyberattacks continue growing against businesses both large and small, and the fast spread of ransomware that requires companies to pay a ransom to criminals to unlock their systems has exploded.
- Employment practices liability: 10% — The number of cases of employees’ suing employers over allegations of discrimination and sexual harassment is on the rise. More states have enacted employment-related laws that expanded protections for victims of workplace harassment and discrimination. These laws have also created new training requirements for employers related to sexual harassment.
- Workers’ compensation: 4.3% — Rates vary across many states, but for the most part they are holding steady.
The only one of the above lines of insurance that has been profitable for the industry is workers’ compensation.
For the rest, the rising costs of claims have exceeded the insurers’ ability to keep pace in terms of rate hikes.
Additionally, in the low interest rate environment, insurers’ investment income has also been low (they are usually barred from investing in securities, which are too risky, and have to settle for bonds and other safer vehicles). The take-away at this time, with many commercial insurance lines hardening, businesses need to double down on their risk management, safety and adherence to laws and regulations covering employment, pollution and more.
While your efforts may not shield your business from higher rates, you can reduce the chances of having to file a claim that would add to any rate increases your firm would face.