Know what’s driving your insurance costs up
When I do renewals for my clients, I always try to prepare them for the upcoming year in insurance. There are many uncertainties in the insurance market today. Most of those revolve around Obamacare and the 2013 changes in health care.
However, property and casualty is an ever-changing field of which business owners need to be aware. Below are my observations and predictions:
There are two major factors that will affect property insurance in 2013. First, property losses in the previous couple of years have been bad for insurers.
Nationally since 2008, property insurers have been hit with weather disasters that include Hurricane Sandy ($25 billion estimated), Hurricane Isaac ($2 billion estimated), Hurricane Irene ($15.8 billion), Hurricane Ike ($27 billion) and other disasters that include the Midwest tornadoes and floods.
Internationally, losses have been worse. This affects domestic insurers ability to purchase re-insurance and thus drives cost.
The other major factor is the implementation by most insurers to use a program called RMS Version 11.
This is a new version of a modeling software that looks at individual structures based on building attributes such as age, roof type, proximity to water, wind zone and numerous other factors. This new modeling system has caused property insurers to be much more cautious of property risks in the Gulf States. This will drive premiums in our area and will impose higher wind and hail deductibles. In the Miss-Lou I haven’t seen too many increased wind and hail deductibles, but if you own property south of here, you will probably start seeing them soon.
Overall, general liability costs I’ve seen have remained fairly stable.
We live in a very litigious society, and to a large degree, the diligence of businesses has helped keep these costs in check.
Businesses, who I’ll refer to as insureds, have been very vigilant in reducing exposures to general liability claims, and have done a much better job of documenting potential claims which makes it easier for insurance companies to defend them.
Technology has played a large role in this. The implementation of camera systems and the ease of documenting potential claims has been a benefit to both insurance companies and insureds.
One area that I’ve seen increased interest in is Employment Practices Liability Insurance. EPLI protects business from claims from employees against their employer. General liability does not cover these types of claims. Examples of these types of claims are sexual misconduct in the workplace, improper hiring/firing, race/age/gender discrimination, and other EEOC type complaints. Often the biggest affect here is defending against the claim. The coverage is relatively inexpensive and claims usually exceed $50,000.
Workers compensation is one of the most complex issues. Overall most workers comp companies haven’t been profitable in Mississippi.
Claims cost have exceeded collected premiums. Louisiana, as a whole, is a little better off but not much. The good news is that Mississippi has made some changes in the laws that favor employers.
The most significant of which is that now if an employee test positive for drugs or alcohol after an accident the burden of proof falls on the employee to prove that the substance was not the cause of the accident, not the employer. This should help prevent frivolous claims.
In 2012, Mississippi took a 9.9 percent increase in workers comp premium, but only a 4.1 percent increase is proposed for 2013. In Louisiana, the state took a 6.0 percent increase in premiums, but only a 2.5 percent increase is proposed for 2013.
While health care, cost are up insureds are better educated about their workers comp and safety programs and this is beginning to show. Additionally, workers comp companies are more strictly underwriting and loss engineering accounts to make sure that they are both safe and profitable.
One other factor is that the National Council for Compensation Insurance who determines employers experience modification, is changing how they calculate that. The new focus will penalize business for frequency more. This can negatively affect business who have many small claims.
Property insurance will probably go up at an average increase of about 10 percent, and locations that are in wind impacted areas will start to see more percentage wind and hail deductibles.
General liability will remain flat although employers will be faced with new exposures from employees.
Workers compensation will see an increase, but not as great as last year’s increase.
Tate Hobdy is an agent at Stephens & Hobdy Insurance. Call him at 601-446-9600 or e-mail Tate-Hobdy@leavitt.com.