As we report in the 2012 Marketplace Realities Report, released today, market conditions for North American insurance buyers remain competitive as abundant capacity creates largely favorable conditions across most lines and classes of business. A positive sign for buyers, particularly in a year that could see record catastrophe losses of roughly $100 billion.
However, the buzz around steep price increases for catastrophe-exposed property programs and employee benefits is making headlines and creating additional concerns for buyers. Despite upward pressure on these lines, there are still opportunities for buyers to mitigate premium increases.
For example, in the property market, which has been rocked by natural disasters and RMS 11.0, the updated version of the leading catastrophe modeling tool, buyers with catastrophe-exposed programs could face rate increases between 7.5% – 12.5% in 2012.
Combating Rate Increases
Savvy buyers will want to heed some advice from Dave Finnis, Willis North America’s National Property Practice Leader, who suggests buyers take the following steps heading into renewals:
- Provide detailed and accurate information on primary and secondary property characteristics in order for brokers and underwriters to properly model your portfolio.
- Start your renewal early and know your incumbent insurance carrier’s position.
- If the incumbent’s position is out of line with a buyers’ objective, shop around. Strong competition amongst carriers in this space means there should be alternative capacity options to help mitigate any premium increases.
In the Employee Benefits space, where compliance with health care reform continues to be a costly burden for insurers and employers, organizations are facing an anticipated 10% -12% rise in benefit plan costs in the year ahead.
This reality has created a heavy focus on consumer-driven health care plan designs, and many organizations are eying an “earned benefits approach” to help mitigate costs, said Jim Blaney, president, Willis Human Capital Practice.
Recently, JP Morgan Chase announced a fairly radical change in employee benefit design which featured an earned benefits approach, among other things. The plan also featured smoking and non-smoking rates. While JP Morgan Chase was the first of the Fortune 500’s to go this route, Mr. Blaney said “it was a big deal because it is paving the way for similar firms to follow suit.” Blaney expects middle market firms to adopt this approach in the next few years as an effective way to both manage costs and reward healthy lifestyle behaviors.
Meanwhile, Willis experts say rates for non-medical lines of coverage, including life insurance, disability, and supplemental coverages (often on a voluntary basis) are still fairly soft. Here, employers are seeing reductions in those premiums, especially if there is a competitive bid process in place.