How Will You Handle Premium Increases with Your Clients?

Are you ready for premium increases almost certain to come to the commercial insurance industry in the next 24-to-36 months?

What's that? You thought rates were going down? Trust me, this is more than a gut feeling. My thinking is rooted in on-going discussions with producers around the nation, as well as with contacts at carriers, and reports in the trade press.

While the consensus of opinion indicates possible industry-wide increases, it appears workers' comp is at the top of everyone's list. In recent days several big carriers have indicated they will be retreating from the monocline workers' comp market.

The Problem: Clients Are Not Prepared for This

Clients have grown accustomed to declining premiums over the years. Most of them have no idea price increases are likely to be on the way. Unless we tell them, we face a credibility problem in the not-too-distant future.

Now is the time for agents to get on top of this before it becomes a problem. Get the facts and start now to organize your thoughts regarding what you will need to tell clients in 2012.

It's not reasonable to expect premiums to always go down. Historically, we know they tend to be cyclical, going through both upward and downward periods. If you prepare your clients in advance you will have more credibility when prices do increase. Begging for forgiveness after the fact will not help your retention rate.

Another Precaution

When carriers indicate they may be retreating from a market, as workers' comp carriers are doing now, that usually is an indication of an overall tightening, or hardening, of the market. When carriers get more selective, marginal cases don't get written, and good ones cost more.

An article in the Oct. 17, 2011 edition of BestWeek, reported in this A. M. Best press release, discusses the changing workers' comp market in California as the state reins in expenses. Couple that information with the fact that the worker's comp combined ratio is expected to increase from 118.1 to 121.5 this year and you begin to see a problem developing.

The current unstable investment environment means carriers can't plan to make up the difference with their portfolios. The logical adjustment for carriers is to raise rates.

NCCI Supports This with Independent Data

NCCI Holdings, Inc., the nation's largest provider of workers' compensation data, is projecting mods on more difficult accounts will go up from 4% to 8% or more in the next 24 to 36 months. Now, add that to the news that carriers will be dropping some of their less solid accounts and let's consider a likely scenario.

If you have two comparable insureds, one with a 1.0 mod and one with a 1.15 mod, the latter may have a bigger problem than just a 15% higher premium. As carriers tighten up underwriting they are also likely to reduce their risks by not writing higher mods at all. If the cut off point is 1.15 the insured with that mod will have to go elsewhere.

Underwriters love to hear that an incumbent carrier is not renewing. It puts them in the driver's seat - and it has been a long time since underwriters have been in the driver's seat.

So, how are you going to be prepared for the future? What are you going to do to you're your clients understand the reality of the future that is taking shape today?

Meghan and I are here to help you prepare for what is coming. Call Meghan or me today. Let us show you how hard we will work to help you place more business in a more difficult environment!

Michael Hardin, Director/Broker