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Businesses shelling out more for commercial policies

A recent survey by the Council of Insurance Agents and Brokers (CIAB), called the Commercial Insurance Market Index, has uncovered a turnaround in the commercial insurance market. After a long period of low rates, commercial property and casualty policies increased in price during 1999.

"The responses seem to affirm what has been widely reported in the press — that health care costs are again rising after a round of cost-cutting measures by providers," says Coletta Kemper, vice president of industry affairs for CIAB, a trade association of property and casualty brokers and agents. The survey of 300 CIAB members found commercial rates increasing up to 10 percent over the last year. Survey respondents even reported up to 10 percent increases over the last three months

Rates for different commercial lines were up in most cases. Auto and workers comp rates have risen the most: 62 percent of respondents indicate "hardening" in the commercial auto insurance market, which means that insurance prices are high enough to cover the insurance companies' cost of providing the policies. Sixty-seven percent report the same trend in the workers comp market. However, most respondents indicate that the commercial property, general liability, and umbrella insurance markets have seen "no change."

Group medical policies also climbed in cost: most respondents say rates have increased by more than 10 percent in the last year.

"For the commercial market in general, prices are rising slightly after a prolonged 'soft' market where prices were below operating costs," says Kemper. "It is a natural, but long overdue, correction in the marketplace." Kemper adds that since rates were artificially low, insurers saw a poor return on their investment. They naturally moved away from low-return activities, leading to less capacity for policy writing. Says Kemper, "Reduced capacity leads to higher prices — it's basic economics."

There's no word on whether the increasing premium trend will continue; the council intends to update the Index quarterly.

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