Brace for changes, cost increases
in business insurance coverage
The grim realities of the Sept. 11 terrorist attacks will not only affect most Americans’ memories but will also affect most businesses in the form of increased insurance premiums and changes in coverage.
The insurance industry is estimating losses from Sept. 11 to reach at least $50 billion, and while experts say the industry can afford to take that hit, reinsurance companies – companies that insure the insurers to help spread the risk across a broader base should a catastrophe occur – are refusing to cover losses resulting from future acts of terrorism.
While the money is available to cover Sept. 11-related losses, the cost of future protection is expected to increase substantially as reinsurers look to cover their financial losses. That means primary insurers will be seeing significant increases in their own premiums, which will then be passed along to commercial clients.
"We see on average, increases anywhere from 25-30% over last year’s (premiums)," said Dale Van Dam, executive vice president of Mortenson Matzelle & Meldrum’s Waukesha office.
The good news, relatively speaking, is that small- to medium-sized Midwestern companies won’t be hit quite as hard as large companies and companies located outside the Midwest, according to Phil Prass, resident managing director of the Milwaukee office of Aon Corp., an insurance broker.
The two areas that are most troublesome to insurers are large property risks and worker’s compensation. Many insurance companies have gone to underwrite a "probable people loss" as a result of the Sept. 11 attacks, Van Dam said. If a large number of employees are located in a single area, insurance companies would be concerned about paying large sums under a worker’s compensation policy. Some reinsurers may walk away from insuring worker’s comp policies, making availability of the coverage scarcer.
Prass agrees that availability, or lack thereof, and pricing will be the main factors driving the insurance industry over the next 18 months to two years.
"The most immediate issue concerning worker’s comp as a result of Sept. 11 is the concentration of employees," Prass said. "What insurance companies will look at is the number of employees in one building, and right now if you have fewer than 500 employees in a building, you should be all right. If it’s 500 or more, they’ll look at it closely."
Two-thirds of reinsurance contracts came up for renewal in December, so coverage changes and premium hikes to the insurance companies will be passed along to businesses taking out new policies or renewing old policies.
"You can’t wait until the insurer notifies you," Van Dam says of the impending increases. "You really need to take steps six months ahead to start negotiating for your renewals."
So what’s a company to do?
One of the things Mortenson Matzelle & Meldrum is telling customers is that insurance companies are going to evaluate good accounts from bad ones in terms of past loss-history and safety practices.
"Companies that have put safety and accident prevention as a low priority, those are the accounts or customers that are going to see the largest increases," Van Dam says. "An underwriter is going to look at them and they could easily be non-renewed or cancelled. Insurance companies are just going to say, ‘We just don’t want to write their business any more.’"
Prass advises to have all the information the insurance agent or broker asks for readily available and make sure it’s accurate. Business owners should also make sure their agent or broker is truly acting as an advocate for their businesses.
"The agent or broker really needs to have a grasp on their client’s business, they need to know the business almost as well as the client, they need to be able to portray that business almost as well as the client, and they need to be able to portray that business in the best possible light to the insurance industry," Prass says. "That will be critical to getting as much [coverage] at the most cost-effective price that you can in the marketplace."
Another change likely to be seen with policies renewed or started in 2002 is the lack of "bundling" or grouping a number of policies together in order to provide commercial clients with better rates, warns The Council of Insurance Agents and Brokers. The policies are more likely to be underwritten on a risk-by-risk basis, with some insurance companies choosing not to write some lines.
"That’s going to put a crunch on the remaining carriers to underwrite that business," Van Dam said.
