Property & Casualty
MARKE T TRENDS & CONDITIONS REPOR T
P&C MARKET TRENDS AND CONDITIONS REPORT
A SUMMARY OF FAC TORS INFLUENCING PREMIUM COSTS
From a severe drought that ravaged crops in the Midwest to the second-costliest hurricane in U.S. history that tore through the Northeast, 2012 was a volatile year for the Property and Casualty (P&C) insurance industry.
Learn more about how this may affect your insurance rates in 2013 in our full trends and conditions report, which highlights the forces currently shaping the P&C insurance market.
HARD VS. SOFT MARKET: WHAT DOES THIS MEAN? MACRO VIEW OF CAUSES & FACTORS AFFECTING THE MARKET
The insurance market waxes and wanes in unpredictable cycles, vacillating between hard and soft markets. When insurance pricing is stable or falling, it is referred to as a soft market. Soft markets have generally predominated in recent decades.
SO, WHAT DOES THE 2013 MARKET HOLD IN STORE IN TERMS OF PRICING? Average Premium Increase = 4%
Environmental, Economic, Political & Legislative forces shape the P&C Market
A few commercial lines are undergoing significant price increases
Losses from events such as earthquakes and hurricanes can result in increased costs to carrier which are passed to businesses as increased premiums
Increased premiums insurance buyers are often forced to forego excess coverage, sacrifice investments or revise budgets to accommodate rising insurance costs which are passed to businesses as increased premiums
Average Monthly Change Average Monthly Change
After more than 75 consecutive months of declining P&C insurance rates, premiums began trending upward in Q4 of 2011. Most analysts expect the market to continue adjusting upward throughout 2013.
Hard markets, on the other hand, are characterized by quickly rising insurance premium costs (typically by 15 percent or more across the board) and shrinking capacity by insurers.
2013 P&C MARKET TRENDS AND CONDITIONS REPORT
FORCES SHAPING THE MARKET
Insurance carriers paid out approximately $20 billion for Hurricane Sandy— making it the third-costliest hurricane in U.S. history, according to the Insurance Information Institute. New Jersey and New York saw the most damage, but Sandy affected 24 states and interrupted the supply chains of businesses all across the country. Fortunately, insurance carriers had sufficient capital reserves to mitigate their losses, so rates have not increased to the extent that many business owners and market analysts initially feared. Although a dramatic, across-the-board spike in pricing has been largely avoided, rates in a few key areas in disaster property coverage—especially business interruption, flood and wind coverage—have started to tick upward.
HISTORICALLY LOW INTEREST RATES In general, insurance rates are inversely related to interest rates. In recent years, insurance carriers have seen their investment income shrink due to historically low interest rates. To compensate for the shrinking investment income, carriers have raised rates.
WHAT CAN YOU DO? Hurricanes, politics, the global economy—it can sometimes seem as if the forces determining your insurance rates are beyond your control. But as an insurance buyer, it’s important to know what trends influence the market and what you can control to get the best price. Your claims history—which you can control—has an enormous impact on whether your rates go up or down. That’s where implementing a solid risk management plan will help steer your pricing in a more favorable direction, both now and in future renewal periods. Business owners who proactively address risk, control losses and manage exposures will be adequately prepared for changes in the market. Please feel free to contact The Horton Group if you are interested in reviewing your risk management strategies. Five key components of a successful risk management strategy: 1. Pinpoint your exposures and cost drivers 2. Identify the best loss control solutions to address your unique risks 3. Create a solid business contingency plan to account for disasters and other unpredictable risks 4. Build a company culture focused on safety 5. Manage claims efficiently to keep costs down
EUROPEAN FINANCIAL CRISIS While the United States works out its own financial issues, financial problems in other parts of the world are also affecting insurance prices. Europe’s debt crisis—particularly in Greece and Spain—has the world on edge as we wait to see if these almost bankrupt countries will be able to stabilize their financial situations. This creates new risks for multinational companies (and their insurers) with exposures in the Eurozone as they are unsure how severe the consequences will be. Some are even wondering if one or more countries may leave the European Union. If that happens, it opens the door for even more risks.
HEALTH CARE REFORM Industry experts speculate that the Affordable Care Act will have the greatest direct impact on medical malpractice liability insurance and workers’ compensation coverages—whether the changes will result in higher or lower rates is still an ongoing debate. On one hand, ACA may contribute to better health outcomes, as people who would have previously waited to get treatment because of a lack of health insurance no longer do so. However, some analysts express concerns that the influx of newly covered patients could exacerbate existing staffing shortages and stretch doctors and nurses too thin. This could result in a higher frequency of medical errors and potentially increase the amount of time workers must wait to receive treatment—ultimately leading to higher rates.
Natural disasters aren’t the only calamity affecting insurance pricing; politics are also causing a stir in the market. In February, our country reached a “debt ceiling,” or a limit on how much national debt our Treasury can issue. On March 1, the sequestration—automatic cuts to the U.S. budget—took effect and funding has been cut for many national programs. What does this mean for the insurance industry? At this point, both short- and long-term effects of the sequester are unknown, but many are concerned the budget cuts might slow the economy, leading to wage cuts and a spike in unemployment. This affects the insurance industry’s growth and certain lines, such as workers’ compensation, may see an increase in rates as more claims are filed by employees unhappy about salary cuts. www.thehortongroup.com
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From a severe drought that ravaged crops in the Midwest to the second-costliest hurricane in U.S. history that tore through the Northeast, 2...