Publish Date: May 5, 2020
Author: Seubert
Tags: Blog - SeubertU

Insurance Market Post-Coronavirus & Options to Control Costs

In the first quarter of 2020, almost all major commercial property and casualty lines of business saw higher average premium renewal rates compared to the last quarter of 2019, and with the impact of the COVID-19 pandemic, we can forecast even more change is coming for the industry.

Market Overview

While each line experienced an increase in premium renewal rates in Q1 2020, directors and officers (D&O) liability has been consistently increasing each quarter since 2019 between 3-5% according to a report published by MarketScout.  In the first quarter of 2020 D&O continued its trend upward and jumped 7.5%.  Commercial property rates saw the next largest surge by 5.14% based on a recent IVANS analysis.  The study also highlighted that commercial auto rates increased 4.81% (a first-quarter high for the third straight year), employment practices liability insurance (EPLI) saw a 4.5% increase, business owners policy (BOP) rates rose 4.65%, general liability (GL) rates grew to 3.08%, and umbrella liability rates increased to 3.06%.

Workers’ compensation (WC) rates fell by 1.81%, though higher than the average 2.84% decrease recorded in Q4 2019. As the insurance industry responds to the coronavirus crisis, another increase in rates can be expected.

MarketScout also reported in their pricing survey that U.S. commercial insurance buyers saw average overall rate increases of 4.5% in the first quarter of 2020, and cautioned that COVID-19 will have a ‘dramatic’ impact going forward.

It is important to point out that these statistics are averages.  Depending on a particular organization’s industry and individual company losses, your results could be dramatically different.

So what can you do to minimize the impact of these trends on your bottom line?  There are simple steps that almost every policyholder should take and additional strategic options that many policyholders should also consider.

Six Insurance Cost Reduction Tactics You Can Take Now

Here are six cost reduction tactics that you can deploy for policies that are placed in the guaranteed cost, or low deductible, marketplace:

  • Re-evaluate the estimates for payroll and revenue that are used to determine premium. Most carriers are allowing adjustments although minimum premiums may apply.
  • Seek out General Liability and Workers’ Compensation carriers that offer reporting, or pay-as-you-go, premium payment plans and see if it makes sense for you. This option times premium payments more closely to cash flow and sometimes offers a lower down payment.
  • Does carrying comprehensive or collision coverage on every vehicle make sense? Depending on the value of a vehicle and your deductible, it may not. Limits for Uninsured and Underinsured Motorists coverage should also be questioned. Review your auto schedule, talk to your Consultant or Broker, and adjust accordingly.
  • Equipment, such as construction equipment that moves from worksite to worksite, is insured on an Inland Marine form and typically losses are settled for the cost to repair or actual cash value. Rarely does replacement cost apply. As such, it does not make sense to value individual pieces of equipment at more than the actual cash value because it results in overpayment of premium. Take a look at your equipment valuation.
  • Property and Business Interruption limits – now that these insurance topics are more familiar to all policyholders, talk to your Consultant or Broker about what the policy would cover and reassess your risk for loss. This often means increasing limits but at a very low-cost trade-off for greater security.
  • What limits are you carrying and do they make sense? Umbrella and Excess Liability policies are getting increasingly complex to place depending on the nature of the risk. Fewer carriers are offering policies and those that are want to offer lower limits at much higher prices. This is especially for the Transportation, Habitational, Social Services, and Construction industries. It might make sense, or be necessary, to layer your Umbrella or Excess coverage rather than place it all with one carrier. Project-specific coverage might make sense if you have one client that is demanding higher limits. This area of coverage requires your Consultant or Broker to be creative and have broad access to carriers.

Strategic Options to Regain Cost Control

Now that you’ve considered the short term fixes, take a minute to consider how you can control costs into the future. Companies who traditionally spend at least $250,000 on primary General Liability, Auto and Workers’ Compensation premiums combined have options that smaller companies do not. These strategies are successful for companies where the safety and risk control culture is deeply rooted and historically successful at minimizing loss. If you feel confident your company meets that description, then ask yourself what your appetite for assuming risk is.

If you have a risk appetite and the financial capacity to assume some risk, there are two basic strategies that can potentially reduce your insurance spend over the long-term. There are other benefits but that is the one that drives most companies to adopt this way of purchasing insurance. Let’s break down the major pros and cons of a Deductible program and a Captive: 

As the hard market for insurance intensifies, know that you have options to minimize or reduce your insurance spend and overall cost of risk. If your safety culture and performance needs work before you will feel comfortable taking on risk, Seubert can help. We are here to help you navigate through the options and guide you toward the best risk management program for your company. Give us a call. Let us connect you to other Seubert clients utilizing these strategies so that you can feel confident exploring your options.

For more information, and to talk to an experienced Seubert Risk Advisor, please call 412.734.4900 or email [email protected].

Sources: Business Insurance, IVANS Index™ Q4 2019 Report & Q1 2020 ReportMarketScout