Most commercial insurance faces single-digit rate increase
By Scott Blake
If you own a business or are in charge of paying the insurance bills at your office, chances are you already know what the experts are saying: expect single-digit rate increases this year for most lines of commercial insurance.
Property insurance rates for businesses are anticipated to rise in 2012 an average of 7.5% to 12.5% nationwide for "catastrophic risk-exposed" commercial properties, according to Willis Group Holdings, a global insurance broker providing professional insurance, reinsurance and risk management.
In South Florida, where most property falls into the "catastrophic risk" category largely due to hurricane exposure, commercial rate increases are expected to be somewhat lower, rising an average of the "mid- to high-single digits," said Hiram Marrero, managing partner at Willis' Florida subsidiary, based at 1450 Brickell Ave. in Miami.
Mr. Marrero said this year's rate increases for South Florida catastrophic risk-exposed commercial properties mark a departure from recent years, when rates generally were flat or decreased in a "softened" market due to the recession and a lack of catastrophic-loss events.
"As the recession began to take hold in 2007, the demand for insurance began to fall," Willis Chairman and CEO Joe Plumeri wrote in the firm's 2012 Market Realities report. "With less business, there is less to insure. At the same time, supply was strong and rates fell — and premiums declined on both accounts."
In contrast, steady rate increases have hit homeowners' insurance in the residential market, Mr. Marrero said. A big reason for the difference between the residential and commercial markets, he added, is that more insurance companies have been willing to write commercial insurance than residential insurance, creating more price competition on the commercial side of the market.
Recently, however, there has been upward pressure on commercial rates.
Globally, 2011 was a challenging year in the property insurance industry following several mega-disasters that contributed to a total of $108 billion in losses, second only to $123 billion in losses in 2005, the Market Realities report states.
In addition, the industry's loss projections issued last year for windstorms and storm surges increased 40% to 60% for exposed coastal areas. "Underwriters were forced to either increase the price for their windstorm capacity or reduce the amount of capacity they were providing," the report states.
Meanwhile, rates are expected to be flat nationwide for non-catastrophic risk-exposed properties, according to Willis.
In addition, casualty lines of commercial insurances — including general liability and workers' compensation — are expected to see to flat rates to 7.5% increases this year. And rates that employers pay for employee benefits, such as healthcare insurance, are expected to rise on average 8%.
Executive risk insurance, which protects a company and its shareholders from losses related to acts of wrongdoing or errors by its board of directors and corporate officers, is expected to see some modest rate decreases to slight increases.
Cyber insurance, which protects a company against losses related to breaches of its software, is expected to see flat rates or slight decreases, according to Willis.
As business owners feel some rate increases this year, Mr. Plumeri said they should try to keep it in perspective.
"So as rates may rise here and there and you may need to do something you have not done in several years — present unpleasant news at budget time — keep in mind not just the cost but the value of what you're buying," he said in a statement.
He added: "You've been paying less — in many cases much less — for things that are hard to put a price on: protection, resilience and the freedom from risk that allows you to take chances and achieve what you and your stakeholders want most to achieve."
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