Insurance costs keep rising, and some trends to watch in 2018

The increasing cost of claims is one of the factors driving up insurance costs. (Photo: Shutterstock)

The increasing cost of claims is one of the factors driving up insurance costs. (Photo: Shutterstock)

In what will come as little surprise to anyone who has recently renewed their commercial insurance policies, rates are going up. The bad news is that there doesn’t appear to be an immediate end in sight, according to a new report from A.B. Best.

The firm said that insurers continued to lose money on commercial accounts in 2017, as they have since the third quarter of 2011. 

“After six straight quarters of rate decreases, insurers began responding to the negative underwriting pressure with rate increases in the third quarter of 2011,” the report said, as reported by the Insurance Journal. “Stung by adverse reserve development at the end of 2011 (after five years of favorable development), companies recognized that the pricing levels were inadequate and began pushing average rates in the sector upward at a growing pace, which continued through third quarter 2017.”

The losses continue to offset strong performance in other areas, the report noted. The result has been an increasing series of rate increases, continuing in the third quarter of 2017 with rates climbing 7.3% in the quarter. That followed a 5.4% increase in the first quarter and 6.1% in the second quarter. A.M. Best says it is uncertain if these rate increases will be enough to offset underwriting losses, suggesting continued increases could be seen in the fourth quarter and 2018.

“Adverse reserve development has contributed to consistent increases in net underwriting losses over the past six years, but insurers initially appeared slow to react as loss trends outpaced rate increases, and commercial auto underwriting losses grew from $744.8 million in 2011 to slightly over $2.9 billion in 2016,” the Insurance Journal quoted the report as saying. “In addition, owing to the lag before results fully recognize premium price increases, profitability remains pressured, and, as loss costs rise, insurers are stuck playing catch-up.”

Among the reasons cited for the continuing losses and increasing rates is a growing economy that has seen more vehicles on the road driving more miles and the increase in distracted driving. Vehicle repair costs, increasing medical costs, and involvement of attorneys in claims are also pushing up claims, the group notes.

The result is that insurers are likely to scrutinize customers more closely for risk, suggesting a further refinement of rates for those carriers at greater risk.

A separate report does offer some bright spots for customers, albeit on the consumer side. But some of the trends could also find their way into commercial policies, including more customer focus that could create increased competition.

According to Ted Gramer, CEO of mobile telematics company TrueMotion, customers are becoming used to service offered by firms such as Amazon, Google and Apple. Because of this, these types of customer-focused experiences are beginning to work their way into other industry, and insurance is one of those, with customer experience and engagement expected to be big insurance trend in 2018.

The year will also see more data usage in identifying risk and more accurately pricing plans. Insurers such as Reliance Partners are using available data to find markets that fit a fleet’s profile best. “It gives us a summary of an account and we can take it to a market that is best for that risk,” Andrew Ladebauche, CEO of Reliance, previously told FreightWaves.

Gramer writes that insurers will continue to leverage data for pricing, but also for personalization of policies. He also adds that distracted driving will become a key focus in 2018.

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