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Commercial insurance rate rise expected to continue

Commercial property/casualty rates increased dramatically during summer 2000 and the hardening will likely continue.

The Council of Insurance Agents & Brokers reports in its November 2000 survey that commercial insurance premiums jumped between July 1, and Sept. 30, 2000, in four out of five product lines: auto, workers compensation, property, and general liability. Insurers did not raise commercial umbrella policy rates, according to the survey.

The council began surveying its 250 members in January 2000, and the study is conducted quarterly. Its membership sells approximately 80 percent of all commercial property/casualty insurance.

"We're seeing a hardening of the market."

Barry Meiners, a spokesperson for the council, says this is only the third survey the council has conducted, so giving historical perspective is difficult. However, he says the third survey's results represent a change from the first two. "We're seeing a hardening of the market," he says. Meiners would not comment on the future of commercial rates.

Workers compensation leading the way

Industry analysts expect continued rate hikes in the commercial lines. Bob Hartwig, chief economist at the Insurance Information Institute, says low double-digit increases across all commercial lines likely will continue through 2001, with workers compensation policyholders paying 10 percent to 12 percent more upon renewing their coverage.

"Workers comp is leading the way in terms of magnitude of rate increases," Hartwig says. California's workers compensation insurance market is the major reason. There, insurers have increased premiums in the high double digits — 18 percent or so and, in some cases, as much as 25 percent, Hartwig says.

California workers compensation insurers have been able to increase rates so much because they are in such a deep hole, Hartwig says. The combined ratio — the amount insurers pay out divided by the amount of premium they bring in — for workers compensation insurance in California approached a whopping 1.4, Hartwig says.

The hike's plateau

Despite recent steep increases, Hartwig expects a leveling-off period starting in 2001. "We've probably reached the plateau for the magnitude of rate increases, but we'll still see low double-digit increases through next year," he says.

Investors might like that. Commercial insurers have led the upswing in insurance industry stock values over the last eight months, Hartwig says, and he sees that trend going through 2001. Commercial insurers "are in the first year of a two- or three-year earnings cycle," he says.

Even with commercial insurer stock heavyweights such as ACE, AIG, and St. Paul doubling or tripling in value since March 2000, there is still room for growth, Hartwig says. "It's been a good ride, and everybody hopes it continues. But you have to produce the earnings."

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