Business Insurance Rates Rising – Slightly
In a recent article by Erik Holm from MarketWatch, he confirms that we are seeing the most aggressive insurance premium increases since 2004. At R&R Insurance, we have seen this slight uptick in renewal prices which indicates to us that 2012 will be a prime opportunity for businesses to review their coverages and their rates.
Here is the article from MarketWatch dated December 6, 2011.
NEW YORK (MarketWatch) — Chief Executive Jay Fishman said his company had increased prices for business insurance clients by 5.2% in October and 5.8% in November, the largest rates increases in several years.
The data from Travelers are the latest evidence the market for commercial insurance is hardening after years of declining prices. That’s good news for property-casualty insurers and their shareholders, but will translate into increased costs for the businesses that buy the coverage.
Travelers has often painted a rosier picture on prices than others in the insurance industry, and the latest data are no exception. But the company triggered a rally in property-casualty stocks in October when it reported it had managed to increase prices in the third quarter, and the new figures disclosed by Fishman Tuesday show the trend had continued.
“Our principal tactic right now is to drive rate,” Fishman said at a Goldman Sachs financial services conference Tuesday. “This is at the very least [a case of] so-good-so-far, but actually it’s beginning to feel even better than that. There is a sense of optimism building around this, and a notion that we can continue to drive this strategy successfully.”
There have been other indications of an industrywide price turn in recent days. MarketScout, a Dallas-based insurance exchange, said its data show commercial insurance rates up 1% in November, the first time its market barometer has shown an increase in nearly seven years. Insurance broker Marsh Inc. said Friday that commercial property-insurance prices had increased 1.7% so far in the fourth quarter.
Pricing data released by insurers or by the brokers that arrange the coverage offer a glimpse into what is otherwise an opaque market. The details of individual commercial insurance contracts aren’t disclosed by the parties involved, and the buyers, sellers and middlemen are the only ones who know the exact prices of specific policies.
The price increases are coming at a time when insurers have struggled to earn worthwhile returns on their investment portfolios. In years past, insurers could count on their investments to make up some of the difference if they underpriced a policy, but ultralow interest rates mean the margin for error is shrinking.
In addition, property insurers have paid out billions in claims from natural disasters in the past year. Ratings company A.M. Best put the pre-tax tally from catastrophes through the first nine months of 2011 at $38.6 billion in the U.S. alone. That figure doesn’t include still mounting losses from the record-breaking earthquake in Japan and massive flooding in Thailand.
Previously, Travelers had said it increased business-insurance prices by 2.3% in August and saw a 4.2% price hike in September on returning customers. At the time, executives said the increases were the most aggressive the company had been able to push through since it reached its current form through a merger of Travelers and St. Paul in 2004.
The figures exclude Travelers’ largest accounts, but the bulk of its commercial insurance business involves midsize and small accounts. The figures Fishman supplied Tuesday showed that a sub-segment comprised primarily of midsize accounts saw rate increases of 8.2% in November.
“You apply that against the sizable business and you begin to see a fairly meaningful increase in revenues,” Fishman said.
Fishman also said Travelers had repurchased $803 million of its own stock in the quarter through December 5, and now expected to buy back between $1.1 billion and $1.2 billion by the time the quarter ends. Previously, the company said it was targeting about $1 billion in buybacks in the quarter.
Even if the company hits the top end of the target, buybacks for all of 2011 would be down more than 20% from the previous year. The company reduced its repurchase activity for part of this year as claims poured in from the natural disasters.
Wisconsin businesses, if you would like a review of your commercial coverage, please contact a knowledgebroker.