Why Commercial Insurance Rates are Rising and What We Can Do About It
By: Andrew Belcher, Production Underwriting Team Leader
Commercial insurance rates rose in 2020, and this upward trend in pricing is projected to continue through 2021 and even into 2022. While many of the causes are beyond our control, both brokers and insureds can take some smart actions now to adapt, remain insured and help level out these rates in the future.
What’s Going on and Why?
The pandemic shook up most industries over the past year, but it really exacerbated pre-existing issues within the insurance marketplace. Prior to 2020, our industry was grappling with social inflation, a sustained low interest rate environment, risk aversion and much more frequent natural catastrophes. Those issues haven’t gone away; in fact, they’re more prevalent now than they were at the beginning of the economic downturn following the COVID-19 outbreak.
Generally speaking, losses drive rising rates in insurance. So when you take this insight and apply it to those ongoing challenges the forestry products niche was already facing, we can start to make some sense out of an otherwise overwhelming situation.
Let’s look a little closer at a couple of pressing issues. Greater litigation costs, which might result from an on-the-job accident, are the driver of social inflation, a struggle for nearly every insurance segment. More natural disasters – from West Coast wildfires to East Coast hurricanes and Texas freezing over somewhere in between – are spiking losses for mill owners and lumber producers.
As losses increase and commercial insurance rates continue to rise, coverages are continuing to restrict. This is especially amplified in the lumber market.
Will This Trend Improve Any Time Soon?
Industry analysts projected commercial rates largely would experience low double-digit increases this year, depending on product and segment need. Already we’re seeing reports of another active hurricane season, so there’s a chance it could get tougher for all of us before it gets better. That means we need to increase collaboration with our partners and clients to make smart short-term steps and position insureds for the longer term. Fortunately, a sliver of hope is already on the horizon as that low-rate environment is attracting the eyes of capital investors who could right the ship in these rising rate tides.
What Can We Do About It?
Although most factors contributing to rising rates are out of our control, brokers and insureds can make some behavioral shifts to adapt to the situation and remain insured until things stabilize a bit.
For brokers, this means leaning into educating our clients, colleagues and industry partners as much as possible. We must keep open and honest lines of communication among us to share the challenges we’re experiencing and work together on potential solutions. When brokers remain in touch with clients throughout their policy term (and not just in the season prior to renewal, for example), they can advise and provide guidance to insureds in need of direction.
For commercial mill owners and operators who have had a particularly profitable season, now may be the time to consider re-investing in their businesses. At Continental Underwriters, Inc., we fully support this idea, especially when it comes to major capital improvements, such as new equipment or even new mills. Re-investing into your mill today will make your business better in the future – and, in a lot of instances, a better write for insurance.
A less expensive re-investment option for mill owners would be in property conservation programs, such as building up the staff or creating incentives for more routine housekeeping duties. We also recommend getting the insured’s property appraised. Staying ahead of the curve on these types of preventative tasks will help clean up bill sheets and keep businesses covered and profitable during an otherwise unpredictable time.
Working Together as a Team
If one thing is for certain in this unique scenario, it’s that we can only get through it together, as a team. We can’t stop the natural disasters coming our way, but we can implement property conservation routines and behaviors to prepare for them. We may not be able to stop commercial insurance rates from rising, but we can stay in communication with brokers, carriers and insureds about it to maintain honesty and transparency about these challenges. We may be going through a difficult time as an industry, but, by working together, we can use this time now to create a better future for all.
It really boils down to preparing and managing expectations, and at Continental Underwriters, that just so happens to be one of our greatest specialties.
Contact Andrew Belcher at email@example.com today to keep your business insured during this season of rising commercial rates.