For businesses of all sizes and across all sectors, last year presented significant new and existing challenges. Many widespread conditions that emerged during the first years of the pandemic continued to affect operational stability while rising inflation and the threat of recession created increased market turmoil. Additionally, Russia’s war on Ukraine accelerated commercial instability on a global scale. Other factors included an escalation in replacement costs for homes and automobiles, skyrocketing construction costs, and an increase in natural disasters such as floods, hurricanes, and wildfires. The high number of recent payouts on claims has unsettled the insurance industry, which now anticipates more claims and associated costs. Industry experts suggest that 2023 will continue to present multiple challenges that are likely to drive increased commercial insurance premium rates.
Despite grappling with external challenges, managing risk is still possible for most businesses. Below is an overview of several commercial insurance products with insight into how today’s market may affect premium costs. Additionally, Eastern Insurance Group will provide suggestions on standards and practices that businesses can adopt or enhance to help manage risk in ways that may potentially affect premium costs. These are general observations and guidelines. To learn more about best practices for managing your own commercial insurance policies, talk to your EIG representative.
Projected market impact on commercial premiums
Premium costs are affected by market trends and the social conditions that often arise in parallel with them. Many experts believe 2023 will see rising premium costs for many insurance products, but the news isn’t all bad. As you will see, many products may present flat or marginal upticks.
Commercial Property
Rates for commercial property insurance are increasing across the board, though the amounts may be significantly higher for properties located in so-called “catastrophic loss,” or CAT, zones—e.g. proximity to known flood or wildfire zones. Regardless of property location, the increases are also driven by rising replacement costs, which are influenced by factors such as labor shortages and supply chain disruptions. Insurers are focusing very heavily on Insurance To Value (ITV) which leads to underwriters not only looking for rate and deductible increases, but in some cases requiring significant increase in valuations which can be challenging for businesses to absorb all at once.
2023 premium prediction
CAT-free: +10% to +15%
CAT-exposed: +15% to +25%
General Liability
Social inflation is a condition that exists when claims costs rise above the general economic inflation rate and is often driven by factors such as an increase in outsized jury awards, protracted legal proceedings, active assailant exposures, and increased medical expenses. While some of these factors themselves are on the rise, in recent years insurance carriers have deployed tightened underwriting standards to assist in mitigating cost.
2023 premium prediction
0% to +10%
Commercial Auto
Rates have risen steadily over the last few years in this sector. Social inflation issues have contributed to a recent increase in claims, as has accident frequency and severity, evolving technology considerations, labor shortages, and steadily rising replacement costs. Given these conditions, premiums seem likely to experience a marginal to mid-sized rise again in 2023. Accounts that have performed well are seeing rate consistency; challenging risks continue to see increases.
2023 premium prediction
+3% to +10%
Workers’ Compensation
Though stable and predictable for many years prior to 2020, the pandemic created new and uncertain conditions that affected the workers’ compensation market. New advancements in workplace safety technology and telemedicine have helped mitigate injury rates and claims. At the same time, other challenges, including musculoskeletal disorders among remote workers, post-traumatic stress disorder (PTSD), co-morbidities, general well-being concerns, and medical labor shortages have created new avenues for injuries, ailments, and claims. These combined factors have created a market balance of sorts that may result in a decrease for some policyholders and a small rise for others.
2023 premium prediction
-5% to +5%
Cyber Insurance
Evolving technology, increased threats, and growing attacker sophistication has driven up the frequency and severity of cyber incidents and led to a steady increase in cyber claims, underwriting losses, and increased insurance premiums. Volatility in the cyber realm for accounts with loss history and/or fewer risk mitigation controls, are expected to continue. Many carriers may implement coverage restrictions to mitigate loss, particularly in facing acts of cyber warfare related to international conflicts, ransomware, and other hostile technology deployments. Over the last two years this segment of the commercial insurance industry has seen high increases in premium costs.
2023 premium prediction
+25% to +100%
Directors and Officers Liability Insurance
Though the risks are slightly different between private/nonprofit entities and publicly held companies, both sectors have greatly stabilized in recent years. Some of this stability is due to the emergence of greater competition among insurance carriers. Trends that influence this market include environmental social governance (ESG) issues, global and economic uncertainty, cybersecurity concerns, and litigation shifts that have resulted in fewer securities class action lawsuits and fewer initial public offerings (IPO) or special purpose acquisition company (SPAC) deals. Though organizations operating in particularly challenging industries may face marginal increases, most policy holders may enjoy a reduction in premium rates for D&O.
2023 premium prediction
Private/nonprofit entities: -10% to +7.5%
Public companies: -15% to +2.5%
Employment Practice Liability Insurance
EPL is another rapidly evolving market facing a rise in claims and subsequently higher premium costs. Other influencing factors include increased regulatory scrutiny, social justice developments such as the #MeToo and Black Lives Matter movements, rigorous new equal pay efforts, LGBTQ protections, as well as growing concerns about emerging artificial intelligence (AI) technology that may factor into discrimination claims. EPL policyholders can expect substantial increases, and those seeking EPL for the first time may encounter coverage limitations.
2023 premium prediction
+10% to +15%
Managing Risk
There are many specific ways to manage the risk associated with each of the above insurance products and an in-depth conversation with your EIG representative can help you create a checklist to align with your particular policy needs. In general, there are a few ways to stay ahead of risk that we share below.
- Regularly inspect your property to make sure it is in good working order and safe for both workers and visitors—and then prioritize fixing any problems before they enlarge.
- Review and update your employee policies to ensure they are clear, modern, and reflective of today’s legal standards as well as the employment environment you want to create—and then be sure to communicate these policies to all employees in regular, accessible ways.
- Stay abreast of changing social norms (remote work, the emergence of DEI imperatives, increased reliance on new technologies) and create a plan for managing the risks associated with them.
- Hire qualified drivers and machine operators and then train them on your fleets and equipment.
- Prioritize routine accident prevention programs and safety training, regardless of your industry—and make sure to acknowledge driver or technician fatigue.
- Establish employee wellness initiatives and develop effective return-to-work protocols.
- Ensure accurate payroll projections and be mindful of state regulatory requirements.
- Regularly review your insurance policies to make sure your coverage aligns with your business goals.
Talk with a trusted partner
In addition to the above, many other factors influence your insurance rates: the type of coverage you’re seeking, the size of your business, your industry, the location of your business, your claims history, and your risk management practices. While none of us can control certain variables—extreme weather, international conflicts, cyber warfare, active assailants, the overall economic condition—we can all learn more about managing the risks most relevant to our business. One of the most powerful steps you can take toward effective risk management is regularly reviewing your plan with a trusted advisor to make sure your coverage aligns with today’s challenges and your unique long-term business goals. At EIG, we are always here to offer guidance. Contact us today at info@easterninsurance.com.