On February 21st, we wrote about the current state of the insurance marketplace for Nonprofit Human Service organizations. The outlook in mid-February was not rosy. Now we can invoke Murphy’s Law. Over the last 30 days, we are witnessing the most widespread health crisis in many of our lives. We are also seeing some of the most heroic acts of professionalism and kindness on American soil in all our lives. Human Service organizations have answered the call in a big way. Our industry, insurance brokers and insurers, need to answer the call for them.
In our February 21st paper, we outlined some headwinds that Nonprofit Human Service organizations faced with respect to maintaining stable pricing, terms and conditions in their insurance and risk management programs. The insurance marketplace for Nonprofit Human Service organizations continued to deteriorate for the remainder of Q1 2020. There are not yet signs of better days ahead. Rate increases on Auto Liability, Abuse and Molestation, Professional Liability and Umbrella Liability lines of insurance skyrocketed. If a Nonprofit Human Service organization was not already forced to move to a Claims Made Policy from an Occurrence Based Policy, they were faced with 25% to 50% rate increases. These rate increases included the continued restriction in Umbrella and Excess Liability terms and conditions as well as capacity. For instance, it is now commonplace to see insurers reduce their Umbrella limits from $10,000,000 to $5,000,000 while charging 1.5x the cost of the previously held $10,000,000 Umbrella. More alarming than this, the Umbrella and Excess Liability insurance marketplace for Nonprofit Human Service organizations appears to have dried up overnight. While there was never a long line of insurers with an appetite for the business of Nonprofit Human Service organizations, there were at least a dozen or so options as recently as Q4 2019. Now, 3 months later, that has shrunk to almost nothing. Nonprofit Human Service organizations are under siege from every direction. We need to stop and collectively find a way to help. We will pen additional articles in the weeks to come with possible solutions. Nonetheless, we need to collectively work to halt this trend. In the meantime, we are calling all Nonprofit Human Service organizational leaders to be aware of what is happening in the Commercial Property / Casualty insurance marketplace. Undeniably, there are more significant requirements of your time now, but the insurance and risk management portfolios of your respective organizations need to be managed.
JKJ’s immediate recommendation is to be proactive and be ready to adapt instantly. Your upcoming 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.
Johnson, Kendall & Johnson’s Nonprofit Human Service team has continued to invest in risk management resources and personnel. Our goal is to maximize the use of all risk management resources in order to control our clients’ total cost of risk. While the results will demonstrate effectiveness, we also need to articulate the strategy to our insurance company partners. Without effectively sharing this message, our clients would be just like the clients of any other broker and risk management advisor. This would be the epitome of commoditization. Our team refuses to accept being average. We will always aim to be the best and our results will speak for itself.
Update on Q1 2020 and more results from Q4 2019
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. The insurance marketplace will undoubtedly push further rate increases in the weeks and months ahead as a result of deteriorating results.
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?
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