The headlines of 2011 mark the worst year ever recorded for insured losses across the globe. Worldwide natural disasters - earthquakes, tsunamis, tornadoes, hurricanes, flooding, winter storms, and unusual freakish weather. 

Nearly $100 billion in insured losses in 2011 means the insurance industry is providing the money to rebuild homes, buildings, critical infrastructure, and lost revenues for the tens of thousands devastated by natural disasters.   This is a reminder that a core mission of the insurance industry is to reserve large sums of ready cash to rebuild, stabilize economies and ease suffering after disasters strike. 

How will natural disasters effect your insurance pricing in 2012?  

In 2012 is appears we are seeing the end to the insurance "soft market cycle" and rising prices are on the horizon. Even with the record financial hit in 2011 the insurance industry remains strong. But, 2012 may bring more of the same or even worse natural disasters.  So, the industry must look to replenish reserves to stay healthy.  Over the last six years, business insurance pricing has discounted up to 40% and personal insurance has seen some reductions or held steady in the face of rising costs.  Now, three factors are putting upward pressure on insurance premiums in 2012. 

1. Following an unprecedented string of natural disasters that has drained nearly $100 billion in reserves, catastrophe losses have caused reinsurance pricing (the cost insurance companies pay to cap their catastrophe loss exposure) to increase up to 15%.
2. Prolonged low interest rates & low earnings on reserves provides less revenue to offset loss experience.
3. Claims – lots of claims, particularly property losses, have caused underwriting losses for most insurers.

How does all this effect insurance pricing for the average consumer and business owner?  Fortunately, only small, modest price increases are expected here in the Pacific Northwest, while changes will be more dramatic in other parts of the country.  Here is what you can expect in 2012…

Homeowners / Property – expect pricing increases from +5% to +10%.   The homeowners - property line of insurance is the hardest hit by claims and has been very unprofitable the last five years for most insurance companies. Competitors like State Farm and Farmers Insurance already increased Homeowners pricing by double digits in 2011.  Our homeowners policies will remain much lower cost than our competitors.

Auto Insurance  - expect pricing changes from 0% to +5%.  Personal auto insurance is highly segmented and rating formulas are very complex which makes individual rate predictions impossible.  If you notice anything other than a small price change please contact us first so we find a solution for you.  

Small Business – property/casualty pricing changes from 0% to +10%.  Many small business owners can expect no change in rates. Increased rates will be targeted to business with claim experience and those in higher risk industries.  A general increase is needed and expected in the property and business auto portions of package policies.

Workers Compensation(WC) - WC  insurers were hard hit by the recession that cut employment and severely lowered WC premiums. Enhanced utilization of costly medical treatment options for WC claimants also adds upward pressure to medical claim costs.  Many state funds are struggling but conditions are improving.  Idaho is an exception with only an average increase of just 2.9% in workers compensation NCCI rates in 2012. Washington Labor & Industry announced there will be no general rate increase in 2012 following an average 12% increase taken in 2011. 

Medical Insurance - Employee health care benefit costs are expected to increase at least 5.4% in 2012. While the projected health insurance increase would be the smallest recorded in 15 years, it still remains well above the general rate of inflation of 3.4%. Premium changes for individual and small group health plans will vary widely based on claim experience. The Heath Care Reform mandate of no cost preventative care benefits is adding to the needed increases.    

THE AMERICAN ADVANTAGE: We monitor the insurance marketplace to find you the best coverage and pricing.  We represent dozens of America’s best insurance companies each competing for your business.  During periods of rising prices you may not be able to avoid modest increases but we can shop for you to find the best pricing available.  Please contact us first with any pricing concern.