For those of you not in the “industry” January 1st is a big insurance date. It’s the day a vast majority of re-insurance contracts renew. Re-Insurance are those folks who insure the insurance companies so they can spread the risk of insuring a $100 million dollar project. After 8 years of declining re-insurance rates, on January 1st for some classes of businesses like construction, rates have increased dramatically which ultimately impacts you the end user consumer of commercial liability insurance, property insurance, and workers compensation insurance products.
In a succinct article summarizing an A.M. Best report, Insurance Network news extrapolated some quick facts in their article P&C Insurers Wince.
The bullet points are as follows:
In 2010 for every $1 in commercial insurance premium taken in the industry had claims and expenses of .99 cents.
In 2011 for every $1 in commercial insurance premium taken in the industry had claims and expenses of $1.08. Which means they lost 8% and climbing for every dollar received in aggregate premium.
Income from investments continues to be spotty and under performing with some actually taking losses on their portfolio contingent on how they allocated their investment choices.
What This Means For You:
No doubt about it prices for certain lines of insurance in classes like construction are going north. How much is contingent on how you make your money, where your business is located, and of course your claims experience which is the great differentiating variable.
Please be mindful as you are bidding on future projects that you factor an insurance price increase into your cost pro formas. Some folks have seen their prices escalate 200% to 300% on renewal which erases most of if not all the profitability on the current work. Be careful not to sign future project commitments without a better understanding on how your unit cost structure or production cost structure will change otherwise you are setting your self up for a net income loss for the year.
In my next few posts I will lay out some strategy on how you can not only protect yourself, but profit from the opportunity as those who manage and become most cost efficient will have a decided competitive advantage in the marketplace.
Can’t wait for those nuggets! I can’t blame you as time is money. Contact a Risk Advisor directly as we would be happy to have a thoughtful strategic discussion on how to best position your company to win in this new and challenging environment.