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Tuesday, Feb 7, 2023
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Businesses Will Feel Insurance Industry’s Pain

After several years of declining premiums on their insurance coverage, businesses had a rude awakening last year when rates increased.

Look for more of the same this year, says Trindl Reeves, principal and chief sales officer for Barney & Barney LLC, a San Diego-based insurance brokerage.

“It’s going to be a continuance of rate increases across the board,” said Reeves, one of a panel of experts at the San Diego Business Journal’s 2013 Economic Trends event.

The big reason for the rise in rates is the huge losses that all insurance companies sustained in the past two years as a result of massive payouts on claims arising from several natural disasters.

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In 2011, those losses were about $105 billion, Reeves said. That figure included losses from major tornados in Joplin, Mo., Tuscaloosa, Ala., and a few other places in the Midwest that collectively totaled about $21 billion in property claims, according to a report from the Insurance Industry Institute.

“These superstorms that are the result of climate change are totally killing insurance companies,” Reeves said. “Their heads are spinning because there’s no way to predict it, but it seems to be happening more frequently.”

Barney & Barney serves as a go-between contractor for companies, negotiating the best rates for their property, casualty, workers’ compensation and health insurance needs from various insurance carriers.

Re-Insurers’ Investment Woes

The nation’s insurance companies aren’t the only ones that took heavy hits last year. So did a group of even larger corporations called re-insurers, Reeves said.

And while these firms have been able to sustain decent profits in the past because of their investment portfolios, the continuing economic malaise has taken a toll on those returns, she said.

“In the past the companies were getting 7 (percent) to 8 percent on their investments. Now they’re maybe getting 2 percent on a good day,” she said. “Their portfolios are hemorrhaging and losing money.”

Insurance premiums started rising in the second half of 2011, and didn’t abate last year, Reeves said. Average rates went up every quarter on just about every type of coverage, Reeves said.

She rattled off the average rate rises: auto insurance rising by an average of 12 percent; workers’ comp, up 27 percent; property, up 28 percent; and general liability, up 14 percent. “It all averages out to about 20 percent increase throughout the year,” Reeves said.

Regarding the always touchy (for employers) subject of workers’ compensation insurance coverage, Reeves had some equally disturbing news.

An ‘Ugly Animal’

“Workers’ comp in California is a whole other ugly animal and it’s getting uglier by the day,” she said.

Last month California Insurance Commissioner Dave Jones recommended a pure premium rate for workers’ comp of $2.56 per $100 of payroll, above the current rate of $2.49 per $100 of payroll.

Make Risk Mitigation Efforts

The recommendations are just that, and don’t have to be followed, but give insurers some leverage in raising their rates for clients, Reeves said.

While many of her clients focus on the transactional costs of their insurance — the type of policy they’re getting and who’s providing the best deal — Reeves said they should be looking more intently on how to improve their risk mitigation measures.

“They should be focusing on preventing accidents from happening, and on more aggressively managing their claims,” she said. “If you’re going to be reducing your (insurance) costs over the next five years, you have to focus on reducing your claims.”

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