Commercial Insurance buyers are being asked to pay more at renewal for the first time in a decade. With the exception of workers compensation, all lines of commercial insurance are currently experiencing moderate to significant rate increases.
There are multiple drivers of this reversal from years of price decreases. Macro factors like sustained low interest rates, which has put increased pressure on insurers’ underwriting operations to generate a profit, as well as social inflation, which has resulted in outsized plaintiff awards and increased loss costs for insurers, have caused insurers to reevaluate their pricing strategies.
At the individual insurance product level, all policy types have unique risk factors which contribute to increased costs. Directors and officers liability insurance (D&O), which covers claims against individuals who serve on a company’s board of directors, employees in executive roles, as well as the entity itself, is typically a lead driver of insurance costs for the portfolio of policies purchased by a commercial client. Risk and Insurance recently explored the key reasons for D&O price increases (click here for article).
The factors mentioned by Risk and Insurance do not include the period of sustained economic growth since the last financial crisis, which, for many firms, has resulted in increased assets, revenues, market capitalization, and employee count; all key baseline rating factors for insurers. Elevated risk factors on top of increased exposure rating has resulted in higher premiums and/or deductibles.
The decade-long soft commercial insurance market has ended as individual insurers are adjusting to new reality of increased loss costs and the evolving exposures within their portfolios.
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