Bill Merget and Victor McKnight, Principals
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What do you see as the trends in business insurance for 2012?
In this continued soft insurance market cycle, the proof of Darwinian theory is evident. Companies continue to seek insurance partners who are the fittest, that is, who truly have their best interests in mind, provide real-time solutions to questions of risk, and create a thorough and competitively-priced insurance portfolio.
What trends do you see in employee benefits for 2012, in cost and in design?
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We are continuing to see premiums increase with no end in sight. The increases are averaging in the high single digits with some carriers and plans trending in the 10 to 12 percent range. Many clients feel that they have reduced their benefits as much as they can so they are demanding new and innovative solutions. Carriers have responded by creating partially self-funded plans for employers as small as 25 employees. These plans allow employers to customize their benefits and avoid some of the requirements under health care reform. Employers are also rewarded for lower claim utilization, so consumer driven plan designs are common as are wellness programs. Sophisticated brokers are able to support their clients in designing a benefit package that provides the coverage employees value while containing costs.
What issues are clients asking about most often and what are you telling them?
Forecasting insurance costs is frequently a topic of C-level executives. We advise that the global property and casualty insurance market capacity remains strong, and as a result insurers continue to price risks competitively and retain a healthy appetite for new business. Although renewal rates remain relatively stable, single digit reductions are not uncommon in some lines.
However, the crystal ball for 2012 California workers comp insurance is cloudier. With rising utilization of medical treatment, workers comp insurance companies are paying $1.26 for their combined losses and expenses for every $1 received. Insurers are covering this shortfall with their investments in order to maintain market share, but this trend cannot continue indefinitely. At EPIC, our research indicates that rates will rise slowly and incrementally. Rather than the “sticker shock” and “average 36 percent” increases alarmingly voiced, our renewals for Jan.1 evidence flat to low single-digit rate increases for average-to-better risks. We expect our clients to see this trend continue through 2012.