2012 Insurance Outlook: Wells Fargo Insurance Services

Mark Stokes, Regional Managing Director

John Fradelizio, Managing Director

[caption id="attachment_44816" align="alignleft" width="176" caption="Mark Stokes"][/caption] [caption id="attachment_44817" align="alignleft" width="170" caption="John Fradelizio"][/caption]

What do you see as the trends in business insurance for 2012?

Some of the major carriers have released indications on how their base rates will be affected by the Workers' Compensation Insurance Rating Bureau rate schedule. Thankfully, none so far have reported plans to adopt base rate changes anywhere near the 38 percent projected increase. Most carriers, however,  have reported significant, and rapidly increasing deterioration in their California workers compensation results over the last year and a half or so due to higher average claim costs. There are a variety of factors affecting these claim costs, largely associated with legal challenges to the 2004 reform, increases in costs of medical care, and a slight increase in overall indemnity claim frequency. It’s no secret as well that insurers' investment income, a major factor in their ability to absorb these costs, is down substantially.

Initial base rate increase indications by some carriers have been in the range of 5 percent to 15 percent. Employers with loss problems will likely see the additional premium impact of reduced carrier competition and less pricing credit. Conversely, those employers who continue to emphasize proactive safety and claims management in their operations will command better pricing, in some cases no increase.  Controlling future experience rating continues to be critical and employers should take advantage of risk control, claims, and training services provided by their broker to help in their efforts.

What other trends do you see in business insurance for the remainder of 2011 and into 2012?

We're continuing to see a relatively stable market with good competitive options for our clients. Reinsurers have reported higher than expected losses in the first nine months of the year, but it still doesn't appear as if this will have significant impact. We are seeing more stringent underwriting in most industries and much greater emphasis on past loss history seems to be having a greater impact on carrier pricing decisions and in some cases carrier interest. Underwriters want to know what specific risk management efforts have been made to reduce the chance of loss in the future.

What trends have you noted in employee benefits, in cost and in types of plans?

In employee benefits, costs are increasing less than in previous years, but still at a rate exceeding Consumer Price Index (CPI) and most cost of living measures.  Employers continue to be confused by the impact of health care reform, although the recent decision by the U.S. Supreme Court that they will hear the case offers some promise that we will at least have a resolution regarding the constitutionality of the legislation. Given the confusion, many employers are adopting a "status quo" approach to benefits, and are making as few changes as possible to their plans. Others are continuing to explore consumer-directed health plans, with higher deductibles and savings accounts, as a means of getting employees more involved in taking charge of their own health. One of the promising areas is employee wellness, and we are working with our clients to develop programs that educate employees to be better consumers of health care and to provide incentives for them to improve their health status.  A healthier workforce will reduce medical insurance costs, and have the additional benefit of improving employee productivity.

What are clients asking about most often, and what are you telling them?

We are continuing to receive a lot of questions regarding health care reform, and the impact that this will have on our clients. We have a team of compliance attorneys who have been tracking this legislation literally since before it was enacted, so we have a considerable knowledge base on this topic. We have also recently partnered with a company to develop a software modeling system that will very precisely quantify the cost of various alternative approaches under the law. Many of the results are not what you would always expect. For example, for some employers the cost of dropping coverage altogether actually exceeds the cost of continuing with an employer-sponsored health plan, due to various tax provisions in the legislation.

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