How An Ex-Mod Projection Can Help Control Work Comp CostsInsurance rates are rising, and securing the right coverage is getting harder. The tightening insurance market is forcing business owners to consider new options, and many are finding solutions in the captive model.
The Hardening Insurance Market
Global insurance rates increased 20% in the third quarter of 2020, according to Business Insurance and based on information from Marsh LLC. Property insurance rates went up 21% and financial and professional lines went up 40%.
MarketScout reports that commercial rates were up across every line of coverage and industry class in the U.S. for the third quarter. Even workers’ compensation – a line that had been resisting the trend of rate increases – rose 0.5%.
The increases appear to be part of a hardening market. Insurance goes through cycles of hard and soft markets. When the market is soft, rates are good, and coverage is readily available. When the market is hard, rates increase, and insurers are more reluctant to extend coverage. For business owners, this means that costs can go up while protection goes down.
Complicating Factors
The rate increases started before COVID-19 hit the world, but the pandemic hasn’t helped matters.
Some states, including California, made it easier for workers who catch COVID-19 to file workers’ compensation claims. Insurance Journal reports that California has seen more than 50,000 workers’ compensation claims related to COVID-19 so far. Although many cases are mild, Property Casualty 360 explains that about 5% of COVID-19 patients will develop severe complications. The pandemic’s impact on workers’ compensation claims may be significant.
Meanwhile, businesses have also been struggling with business interruption. Many businesses lost sales during state-ordered shutdowns, but because these closures aren’t tied to fires, storms, or the other types of property damage normally connected to business interruption claims, it has been unclear whether coverage could be available through property insurance policies with business interruption clauses. According to the National Law Review, this has led to litigation that will likely drag on for a while.
Also on the liability front, nuclear verdicts and social inflation have been driving rate increases in many lines.
The Captive Solution
Faced with rising rates and coverage issues, some business owners are looking for new solutions.
The current insurance market is leading to increased interest in captive insurance programs. In the captive model, similar businesses join together to form an insurance company. This model provides businesses with a way of controlling their coverage while also providing certain tax deductions. Learn more about captives here.
Although the captive model has experienced some popularity in recent years, the pandemic is sparking renewed interest in it. According to Insurance Journal, 76 new captives have been formed this year globally, a 200% year-on-year increase.
Interested?
The team at Heffernan Insurance Brokers has helped many companies achieve great success through these types of innovative insurance models. Captives are particularly attractive for safety-conscious companies that are willing to use risk data to drive better results. Ask your Heffernan Insurance broker to further explain your options.
