Commercial Insurance Rates Expected to Rise

Lexington, KY - Property and casualty rates are on the move, and business owners should be prepared for an increase in pricing when renewing their insurance program in 2013.

A few business owners may have seen a slight increase in pricing during 2011, however many more experienced an increase in 2012. U.S. property and casualty rates steadily increased last year an average of 5 percent, according to MarketScout, an insurance exchange based in Dallas, Texas. Depending on the type of business (transportation, manufacturing, hospitality, retail, etc.) and loss experience, a business owner may pay more than a 5 percent increase at renewal. As a local independent agent, I have seen anywhere from a 3 percent to 20 percent increase on renewals. Many analysts predict the increase in pricing will continue through 2013.

The current insurance market is not considered a hard market; however, it is definitely starting to firm up. This past year was the first time in approximately seven years we have seen a steady increase in pricing. The last time we experienced a hard market was from 2001 to 2005. Since that time, rates have decreased consistently year after year, producing what is known as a soft insurance market.

A soft market is a classic buyer’s market, where many insurance companies are competing against each other to offer favorable pricing with lower deductibles and the best coverage available. During a soft market, business owners will see more insurance companies active in the marketplace and willing to write a variety of businesses taking on more risk. During a hard market, insurance companies will have stricter underwriting guidelines and be selective on the types of risk they want to write. Business owners will also pay much higher premiums and possibly have higher deductibles with limited coverage, compared to that of a soft market.

A hard market usually follows a major catastrophe such as 9/11, when the last hard market began. Prior to 9/11, rates were already on the rise in 2001, and with the tragedy of 9/11 totaling more than $32.5 billion in losses, reinsurance rates increased, affecting the entire marketplace.

Many business owners may not understand why their insurance premiums are increasing when they have not experienced any losses. There are many factors that an insurance company takes into account when underwriting an insured’s business. Some of the factors they will look at are the type of business one is operating and losses associated with that type of risk, as well as the business loss history over the past five years.

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