The Washington Post
Already facing a slumping economy and uncertain growth prospects, businesses across the country are in for another unpleasant surprise: soaring insurance rates.
After roughly a decade of declining premiums, the property and liability insurance market is turning "hard," experts say, with carriers both boosting premiums and restricting coverage.
The terrorist attacks on New York and Washington, D.C., are, of course, a key factor in this change. But insurers were already seeing the higher costs and weaker investment returns that historically have driven premiums upward.
"We were having a hard market before September 11," said Robert Hartwig, chief economist for the Insurance Information Institute, an industry organization. "What I mean is, commercial (insurance) lines were rising typically between 10 and 15 percent, depending on the line."
The increases were being felt in most major property and liability coverage, as well as for workers’ compensation, he said. He cited a surge in the size of jury awards in lawsuits and growth in medical costs as factors in those increases.
Since the attacks, some insurers are quoting increases of 50 to 100 percent for shippers and owners of large commercial properties — and far more for airlines. And brokers say carriers are discussing new restrictions, such as excluding damage resulting from terrorist attacks.
David Hirschmann, senior vice president of the U.S. Chamber of Commerce, said insurers are warning large customers, whose commercial policies typically come up for renewal at the end of the year, that it’s crucial that the reinsurance market "has to be working well by then … so we don’t face huge increases."
Reinsurers, companies that for a fee take on some of the risk underwritten by primary insurers, are expected to take a beating as a result of the Sept. 11 attacks. That will make it more difficult — and expensive — for primary insurers to lay off some of their risks.
"Everything we’ve seen from the reinsurance side and the (insurers’) side, reinsurance premiums are going to go up significantly," said Joseph Annotti of the National Association of Independent Insurers, a trade group.
Annotti said the general rate increases will spill over into auto, homeowner and small-business coverage, though premium jumps for those policies will likely be less dramatic.
One bright note on that score, he said, is that personal and small-business coverage, far from terrorists’ attention, is now "a lot more attractive than large commercial properties."
Premium income is generally more important to insurers than investment results for coverages such as personal automobile insurance, where the interval between initiation of coverage and a claim is likely to be short. Investment income is more significant for "long-tail" coverage, such as liability and workers’ comp, where claims can arise much later.
The rise in premiums is likely to be a shock for businesses, which have been enjoying one of the most favorable insurance climates in decades. Through most of the 1990s, businesses saw premiums drop sharply when their policies came up for renewal as carriers competed aggressively for market share.
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