From the Nepal earthquake to the California wildfires destroying over 1,000 homes, 2015 was a year of extremes. Even so, the United States experienced a light loss year, with insured losses due to weather and storms down 36% in comparison to 2014, while, globally, the natural catastrophic losses kept pace with past years. For the insurance market as a whole, rates are continuing to trend downward, which has been the case since 2013.
As we begin 2016, let’s take a look at what’s going on in five specific areas of insurance: Property & Casualty, Executive Risk, Cyber & Data Security, Terrorism and Workers’ Compensation.
Property & Casualty
Overall, 85% of our clients are expected to receive a decrease in premium, with an average rate reduction of 4.1% across all lines of coverage, dependent on claims history. However, there is one exception to this trend: automobile coverage. Modern cars are equipped with technology features that are very expensive to repair, so auto insurance premiums are currently increasing by 5-10% across the board.
Another trend in the Property & Casualty area is social engineering, a sophisticated form of “phishing” where a hacker convinces employees to send money to a criminal source. To be covered for an attack, social engineering needs to be added to a Crime Policy, as it is not automatically included.
2016 Takeaway: Insurance carriers are hungry for business and are willing to drop rates to keep clients with low claims history. Companies can take advantage of this by negotiating renewals early to lock in low rates.
Employment Practice is currently the number one type of claim we are seeing right now in the Executive Risk arena and California rates are still on the rise due to significant frequency and severity of claim activity. Employers can expect a 15-20% increase in Employment Practice Liability (EPL) premium in the coming year.
On the other hand, we are seeing the Directors & Officers (D&O) market improve, with 62% of our clients getting rate reductions during the second half of 2015. San Diego life science companies undergoing a binary event such as an IPO or a Phase 3 Data Release are not enjoying the same decrease, as they will not see any reductions until after both events are successfully completed.
2016 Takeaway: For private companies, EPL is a premium driver, so be sure to explain your human resources practices and any other factors that differentiate your risk profile to your insurance broker before buying coverage.
Cyber & Data Security
Cyber & Data Security is still top of mind and while more companies are buying coverage and existing buyers are increasing limits, only 5% of our clients have a cyber-liability policy. Responsibility for cyber security within organizations has become a bit of a hot potato as companies try to decide who internally should take ownership of the issue, causing indecision and inertia when it comes to purchasing coverage.
In 2014, Marsh & McLennan Agency released a Cyber & Data Risk Report based on a survey of over 600 mid-size employers. Click here to download the report. We will be releasing data from the 2015 survey soon.
2016 Takeaway: Cyber-attacks and data breaches are not going away anytime soon, so it’s crucial to get educated and make important decisions to protect your business. Cyber policies are not difficult to understand and can be customized to fit your business needs.
In 2014, the number of lives lost to terrorist attacks increased by 81%. The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) provides re-insurance coverage to insurers in the event of a certified terrorist attack, meaning that Congress must confirm that an attack is related to terrorism for the coverage to kick in. Workers’ Compensation programs include terrorism coverage while terrorism coverage is optional for Property insurance.
Standalone coverage is also available through longer term contracts, but avoids the requirement for Congress to certify the terror act.
There are also some other relevant new coverages to be aware of:
- Cyber Terrorism. Now excluded from TRIPRA, cyber terror must be included under your cyber program, either expressly granted or silent, which implies it’s covered.
- Political Violence Coverage. This type of coverage is currently excluded in all other policies, but can protect a company from strikes, riots, rebellion, and even war..
- Active Shooter Coverage. There has been a three-fold increase in the number of shootings in the US since 2009, with 40% of these incidences taking place in the workplace. This new coverage covers an employer’s expense related to the attack such as counseling services and public relations, among others.
2016 Takeaways: No one wants to talk about the possibility of a terrorist attack, but unfortunately, this is the new reality we live in. Make sure your business is adequately protected should the unthinkable happen.
California workers’ compensation is always a big point of interest, as California has the dubious distinction of ranking number one in highest cost per claim. Why is this? To put it simply, we have the highest frequency of permanent disability claims, higher medical cost per claim due to prolonged medical treatment and a higher than average cost to handle the claims.
SB863, which passed in Sept of 2012, has proven to be both good and bad for our workers’ compensation system. On one hand, the bill has netted the system $770 million in savings thus far due to reduced physician/surgery costs and reduced number of liens. Nevertheless, the number of Independent Medical Reviews, which were designed to resolve disputes, is three times higher than expected, increasing costs and adding to administrative burdens.
In 2016, experience modification (Ex-Mod) will be calculated using expected loss rates instead of premium rates, which means you will get your Ex-Mod Factor sooner, so you can budget accordingly. In 2017, larger companies with more claims will see higher claims costs because the split point used in the calculation will rise.
2016 Takeaway: For the first time in eight years, we are seeing workers’ compensation rate reductions at an average of 5% depending on industry and claims activity. Let’s hope this trend continues.
Given our world of extremes, prudent risk management has never been more important to the health of enterprise. While rates for a variety of coverages are stabilizing, new and growing risks such as workplace violence or social engineering scams need to be addressed. The industry continues to respond to new threats and with clear planning and honest assessment, many costs can be mitigated. In 2016, shrewd businesses are planning ahead, seeking ways to bend and not break in the face of potential headwinds.