Insurance outlook: economy down, but costs heading up

Craig Hall, The Business Times:

Western Colorado is experiencing a mixed bag when it comes to insurance rates. Jamie Lummis, a partner at Moody Insurance Agency in Grand Junction says that property and casualty rates are competitive, workers’ compensation had its first rate increase in nearly ten years and health insurance rates are continuing to increase. Additionally, many business owners still tend to be underinsured as it relates to the current business climate such as cyber liability and lack planning and coverage for succession, key personnel and short and long term disability.

“I see pricing staying mainly flat in many insurance arenas, although the health insurance sector continues to see rates rise,” says Lummis, “And there can always be outside factors such as legislation, weather related catastrophes and unforeseen circumstances that may be factors in terms of rates or policy changes.” For the latter occurrences it is more a matter of insurance companies working through the issues so coverage is available with minimal cost increases.

While insurance carriers typically hope prices will increase, that fact in and of itself is not neccessarily news for businesses. Many policies have premiums that are tied to sales, revenues or payroll, so an increase in overall rates can be taken as a sign of the economy recovering. In the workers’ compensation arena, even though rates did increase over the past year, companies like Pinnacol Assurance (the largest insurer for workers’ compensation in Colorado) have been proactive in helping businesses keep the cost increases minimal while keeping the climate for workers’ compensation very healthy. Pinnacol is integral in working with employers to control the number and severity of workers’ compensation claims, limiting exposure in employee loss prevention and continues to return premium to its insured businesses in the forms of general dividends.

Another area that affects rate increases is in the number of carriers a particular segment has providing services. “In the property and casualty arena that there are plenty of carriers available.” Says Lummis, “Although in construction the competition is limited due to the continued construction defect exposure in Colorado.” Additionally, general contractors, which have long-provided construction bonding to limit their exposure, now face a situation that requires them to have subcontractors to be bonded in the same manner. The bonding for subcontractors has extended to making the owners individually responsible to complete the work that they have committed to, in what has been a volatile marketplace for the past few years with many companies going out of business. While this does indeed make things more expensive on the insurance costs of constructing and is being dictated by the down economy, many insurers believe it will make for a better, safer marketplace as the economy recovers.

As for health care, the cost increases continue. “We foresee an increase in the small group market of Colorado of anywhere between ten to twelve percent,” according to Bob Ryan, a benefits consultant with Moody Insurance Agency. The factors in this cost increase vary according to Ryan. There are fewer people enrolled in health insurance in Colorado, the number of small companies that offer health insurance has dropped significantly and the number of health insurers is shrinking due to companies like Aetna that have pulled out of the small group market (50 employees or less) and through company mergers and acquisitions. A final factor in the increase comes in the form of federal health care legislation that adds certain requirements and mandates to coverage. “Depending on the carrier you talk to, it is estimated that these add anywhere from one to five percent to rate increases,” says Ryan.

Another overlooked area of business coverage is in missed coverage opportunities, something in that runs the gamut from traditional needs to doing business in a tech savvy economy. Many businesses never take into account succession plans, partnerships and key employee coverage, as small businesses can tend to look at insurance on an individual needs basis. “I recently heard a number of entrepreneurs who said that business owners ought to plan their exit strategy as part of their original business plan,” says Lummis, “And that is where your agency and its connections of professionals in the marketplace can be invaluable in getting these absolute business needs addressed.”

Insurance companies now offer a variety of ever changing products and services to meet the ongoing and changing needs of businesses. This list now includes key employee coverage, short and long term disability as a benefit to protect the long term needs of employees, cyber liability to protect a company from the loss of sensitive data and employment practice insurance to cover exposure to harassment and termination claims. And while some of these varying policies may not directly address your exit strategy as a small business owner, they certainly can make your exit that much more financially sound.

“I think we’ll see that pricing for insurance for many businesses will stay relatively flat as we head into 2012,” says Lummis,” However, in certain areas like health insurance, director and owner liability and workers’ compensation we’ll still see an increase.” But for many businesses in a down economy, having the knowledge upfront about what to expect allows them to accurately plan for the future.