Insurance experts predict rates will continue climbing

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Commercial insurance rates have been climbing, due to several factors including COVID-19, and those in the field expect the rates to continue to rise at least through year-end.

“Rates are definitely up, there’s no question about it,” says Dan Peck, property and casualty practice leader at Brown & Brown of N.Y. Inc.

Depending on the type of coverage and the business sector involved, local rates are up from 20 percent to over 100 percent in a number of commercial lines, Peck says.

The rates and how commercial customers are affected varies by industry, he notes. While manufacturers may be seeing increases in general liability insurance, nonprofits may be seeing significant increases in cyber liability insurance.

“It’s not as straight and linear as you may think,” Peck says.

The COVID-19 pandemic may bring changes to the industry, he says.

Business interruption insurance, for example, may be one area that is re-examined.

The insurance offers companies som e protections due to government-mandated business shutdowns, such as what happened to non-essential businesses at the onset of COVID-19.

However, most polices have exclusions, including one for viruses, which meant that some businesses that were closed temporarily were not covered under their policies.

Many companies are challenging those policies in court but may not get the verdict they were seeking.

At the end of 2020, there were some 1,400 COVID-19 related suites filed against insurers, according to data compiled in Brown & Brown’s Market Trends in Commercial Insurance for the first quarter of 2021.

While the trend from those suits is showing judgements in favor of the insurers, the global pandemic may lead to changes in what is included in commercial policies moving forward, Peck notes.

“Over the next five years, I think we’ll see how this unfolds,” he says.

Another factor not directly related to COVID-19 that is driving many increases in various commercial insurance lines is social inflation, Peck says.

Social inflation is used by insurers to describe the rising costs of insurance claims resulting from things like increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions and larger compensatory jury awards.

Settlements are higher than ever, Peck says. It is not unusual to have settlements that used to be between $1 million and $3 million now come in at $10 to $15 million.

Peck says such verdicts are leaving insurers shaking their heads.

“Many are dumbfounded because they haven’t been charging for these types of verdicts,” he says.

As a result, underwriters have become stricter, decreasing the amount of coverage provided, but charging more for it.

That creates pain in the marketplace for clients, Peck says.

Despite the challenges, there are some bright spots when it comes to commercial insurance premiums, Peck says. They include worker’s compensation insurance, which has not increased as substantially as other lines.

Also doing well and holding steady at more favorable rates is international insurance, which is a benefit to the number of local companies that do business overseas, Peck says.

Brown & Brown advises clients early in the process on what to expect when it comes to insurance premiums and what mitigation factors they may want to incorporate, such as best practices, proper documentation and attention to detail to ensure they receive the best rates.

Clients have also become good at dealing with risk management as a result, Peck adds.

“It’s better to spend money up front and be safer than to spend a lot of money later on for high premiums,” he says.

Christopher Hubler, partner and agency manager at Canandaigua Insurance Agency, agrees commercial insurance rates are increasing for industries across the board, from retail and restaurants to healthcare and manufacturing.

Among the lines Hubler is seeing with the highest rate increases are automotive, property/casualty and professional liability.

He expects to see rate increases over the next 24 months and questions if they will again return to previous levels.

“There’s a lot of uncertainty,” he says.

The pandemic, increases in civil litigation, supply chain delays for materials and natural disasters are among the factors contributing to the increases, he notes.

Another factor is consecutive years of insurance companies paying out more money in claims than they are receiving from premiums.

As a result of the increases, some clients may choose to reduce coverage temporarily to keep premiums in-line for the short-term and go back in a year and re-examine the situation, he says.

Hubler says it is good practice in general for people to review their policies at least every couple of years, if not annually, to make sure they are getting the best rates.

“Rates are always changing,” he says. “It’s worth it to routinely review one’s policies.”

Cynthia Bostley, risk management advisor with Haylor, Freyer & Coon Inc., says the industry is currently in a hard market, which is defined as an upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases.

She says commercial lines most affected include automotive, general liability and umbrella policies.

Among the fastest growing lines reporting the highest number of claims are cyber liability and employment practices liability, which could mean higher rates for each one down the road, she notes.

She recommends small-to-mid-sized clients, in particular, consider both lines since they can be at risk for claims in those areas.

Bostley says the pandemic did not necessarily lead to the current rate increases, noting other increases, such as nuclear verdicts from juries who awarded larger than normal settlements to plaintiffs, played a big role.

She expects such increases to continue at least until the end of the year.

Working with an experienced broker is a good idea since they can negotiate competitive premium rates, she says.

There is no one size fits all approach, however, and Bostley works with clients on an individual basis to find the best policies for each situation.

In addition, communication is key and so is being proactive. Bostley starts the insurance renewal process well ahead of expiration dates so there is ample time to secure competitive rates.

Doing so also allows more time to get clients up to speed on the situation, so there are no surprises.

“People can handle bad news if they are told about it in advance and know what’s coming,” Bostley says.

Andrea Deckert is a Rochester-area freelance writer.