The United States Commercial Insurance Industry experienced premium rate increases in Q4 2019 of approximately 7.5%[1]when compared to an average increase in Q3 2019 of just over 6% for all sized accounts. Larger accounts had larger rate increases. When forecasting the rate climate of 2020 several months ago, Johnson, Kendall & Johnson expected that the industry would continue to experience rate increases. These expectations were universally shared throughout the insurance industry. The environment in which rates are increasing is commonly known as a “hard market.” In 2019 and Q4 2018, the average premium rate increases across all sized accounts were: 6.27% in Q3 2019, 5.23% in Q2 2019, 3.50% in Q1 2019 and 2.40% in Q4 2018.
Despite underwriting losses in the last few years, insurance companies continued to remain profitable due to investment income. Insurance company stock prices were near all-time highs over the past several years. These highs were partly attributed to revenue growth. The growth was fueled by increasing rates and investment income.
Not surprisingly, COVID-19 is changing the Commercial Property and Casualty insurance industry outlook for 2020. It will have a significant impact on consumers of insurance. A rate increase last year will not shield an organization from another rate increase in 2020. It is a reasonable expectation that the underwriting profit of insurance companies will suffer. Lower returns on investment income and underwriting losses will exacerbate an already hard market. Q1 of 2020 results are just becoming available. As recently as April 8th, Business Insurance[2] reported that all major Commercial Property and Casualty lines of business saw higher than average premium renewal rates. Across all industries in the U.S., rate trends in Q1 2020 were: +5.14% for Commercial Property, +4.81% for Commercial Auto, and +3.06% for Umbrella. Workers Compensation remained the one bright spot reporting a -1.81% rate delta.
JKJ’s recommendation is to be even more proactive and be able to adapt instantly. 2020 insurance renewals will be as important as ever. Work with an insurance advisor that you trust. Find one that has an expertise in your business. While price will be a huge determinant in buying decisions, look to maximize risk management resources from your insurance advisor (i.e. risk prevention tools and claims analytics). Meet your insurance underwriter in person or via video conference to form a personal bond. Implore your insurance advisor to be out to the insurance marketplace with the incumbent insurance company and competing insurance companies early. Hesitation and delay will kill the best laid intentions.
If choosing a new insurance advisor, or staying with the one you trust, do yourself a favor and make that decision first. Most times, it will not benefit you to have insurance advisors vie for your business by offering competing quotes. It would be virtually impossible to compare apples to apples (i.e. quotes could be based on different rating exposures, terms, and conditions). Choose an insurance advisor based on expertise, experience, qualifications, creative risk management strategies, their cost and your relationship with that person. Come to an agreement with your insurance advisor on the marketing strategy. Execute the strategy and trust the process. This will be a year when you need to trust and rely on insurance professionals more than ever. Most insurance advisors are well intentioned. Work with the one that is best for you and your organization. You won’t be sorry!
About the author: Kevin P. Dougher is a partner with Johnson, Kendall & Johnson. His 16-year tenure with the firm has seen him develop several niche insurance and risk management practices throughout the United States. Visit Mr. Dougher on LinkedIn here.
[1] https://www.ciab.com/resources/news-release-market-continued-to-harden-in-q4-2019-according-to-ciab-market-survey/
[2] https://www.businessinsurance.com/article/20200408/NEWS06/912333934/Commercial-propertycasualty-insurance-rates-rise-first-quarter-Ivans?
We understand that this is an evolving situation and further updates will be provided as information becomes available. If you have any questions, please complete the form below:
