If you own a business, you know that the exciting work is sometimes daunting.With the freedom to be your own boss comes the risk of liabilities. You’ve probably already purchased coverage to keep your business protected.And you’re probably wondering why business insurance rates are on the rise in recent years.
Here’s a look at the recent rise of business insurance rates and why they’re increasing.
Rates Are Rising in Most Types of Coverage
It’s no mistake that insurance pricing increased in most commercial lines in 2017.Renewal rates for commercial auto insurance increased by 2.9 percent on average. Commercial property rates, specifically, increased by the same amount in the fourth quarter of the year and 3.1 percent for the entire year. Not only this, but general liability premiums rose 1.9 percent and rates for business insurance policies increased a drastic 3.9 percent.
However, policy holders in Florida and Texas who suffered the most from hurricane losses in 2017 had different premium responses in 2017. This is an interesting response considering their circumstances. The average property premium in Florida increased 1.4 percent while in Texas the rate increased a drastic 4.1 percent.
So, where’s the difference coming from?
The Affordable Care Act?
Many people claim it’s because of Obamacare. People opposing the Affordable Care Act describe the premiums as “skyrocketing” under Obamacare. Their argument is that the law’s requirements to cover certain basic health benefits, including preventive care, are forcing employers to buy insurance plans that are too generous for employees and in turn more expensive. They claim it could also accost for the natural disaster damages.
However, this isn’t the case.In actuality, health insurance premiums have been rising for decades. And according to the U.S. Department of Health and Human Services, the premiums actually decreased after Obamacare came into law in 2010. So, it’s not rising in terms of health insurance. Where is it coming from?
Individual Insurance Market
This stands totally opposite to the individual insurance market. In these areas, as previously mentioned, insurance has gone up significantly. It appears that insurers completely misjudged the population who would buy individual insurance, underpricing prior to 2016. The correction that began that year continued with steep premium hikes for 2017. According to the National Federation of Independent Business, 41 percent of business owners bought their own insurance rather than got coverage through a group policy to buy for their employees.
Because of this,partnered with the disastrous hurricanes in recent years, commercial insurance buyers will probably face major rate increases in 2018. Although the market reaction is still unfolding, reports indicate that underwriters will be pushing for rate increases as they reconcile some earnings hit for others. For some, this might even include a capital hit. There are even some underwriters who will need to dip into capital to fund their losses. If this is the case, they’ll be pressured to raise rates to replenish that capital.
For buyers, this might mean the long soft market for commercial property insurance could temporarily pause. There may be upward pressure on rates in other types of business insurance. It’s kind of all up in the air. Essentially, organizations should be preparing themselves for a changing market and define their risk tolerances if rate retentions spike.
So, although you might be looking at a higher insurance rate in the future, be ready for some significant earnings hit. The market is changing, you just have to be ready to adapt.