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Insurance policies are SKYROCKETING! Here’s what to do if your insurance policy increases
Most businesses battled increased costs in 2022. Inflation of goods and services contributed to rising prices and was the culprit of a squeeze on the bottom line for many businesses.
As an insurance agency servicing businesses across the country, we warn our clients to expect increased insurance costs in 2023.
Increasing insurance premiums cannot only be attributed to the inflation of goods and services. Let’s discuss some other factors that may also influence this.
The Harsh Truth
We expect insurance costs to increase across most markets in 2023.
In 2022, we witnessed increases in some lines of coverage, such as property insurance, automobile insurance, and certain liability products. However, in 2023, we think premiums will rise in all products, and none will be insulated from the pressures of macro-level economic conditions.
Of course, the simplest explanation is that insurance companies had to increase rates to keep up with their costs to repair and replace damaged property. And insurers had to act quickly because of the rapid momentum of these increased costs.
However, this is not the only factor to consider.
Another lesser-known trend driving insurance premiums up revolves around social inflation.
As an insurance buyer, you may have heard the term ‘social inflation’ used by your insurance representative. It refers to trends that impact insurance costs, including increased litigation, plaintiff-friendly legal decisions, more significant jury awards, and broad insurance policy interpretation.
These are a few of the factors driving social inflation.
Business owners should remain informed about litigation funding, which occurs when a third party provides resources to attorneys to finance a lawsuit. In exchange, the third party receives a portion of the settlement.
Litigation funding can be equated to investing in a legal matter. It increases the cost of litigation because plaintiffs can take cases further and pursue larger settlements.
Laws designed to reduce litigation can be referred to as tort reform. Its purpose is to prevent frivolous lawsuits and preserve laws that prevent abuse against businesses.
Many states have enacted tort reforms over the last several decades, leading to fewer claims and punitive damage caps. However, in recent years, opponents have challenged tort reforms believing that they lower settlements to the point where attorneys take on fewer new cases.
If tort reform continues to erode, there could be fewer restrictions on punitive and noneconomic damages, which drive up the costs of claims.
Plaintiff-friendly Legal Decisions and Large Jury Rewards
Anti-corporate culture is more prevalent than ever due to increasing distrust caused by highly publicized issues related to privacy and data mishandling.
Such issues impact the perception of businesses by a jury in court. Juries are likelier to sympathize with plaintiffs, and the plaintiff’s counsel plays to a jury’s emotions.
This leads to higher jury awards and nuclear verdicts, which have become the new norm.
So how can you protect your business and prepare for rising costs?
Insurance is a cyclical market. We constantly remind our clients to take advantage of the soft market periods because challenging periods always follow.
In my 20 years in this business, I can’t say I’ve witnessed this many forces pressuring insurers at one time.
Here are a few tips to protect your business and prepare for rising costs:
Do not trade coverage for the cost
I’ve said it many times, but no two insurance policies are identical. Remember that you could give up important protection when presented with savings.
Also, I do not recommend decreasing insurance limits or removing essential coverage items to lower premiums. That said, if you’re more adverse to risk and understand the ramifications of higher deductibles or self-insured retention, that is a strategy you can discuss with your agent.
However, lowering limits or reducing coverage could prove detrimental to your business.
Consider an Umbrella Policy
Rather than reduce your coverage, consider increasing it. I am telling you to buy more insurance when businesses want to cut costs.
An umbrella policy provides financial protection above the limits of your organization’s other policies. An umbrella can provide additional protection for various concerns such as vehicle accidents, third-party property damage, product liability, libel, customer injuries, and employee injuries.
Protect yourself from employment practices claims
Given social inflation trends, employment practices claims are common and devastating to a business. For more information, check out our recent video about employment practices liability insurance (EPLI), which you should consider purchasing. However, you must also deploy proper human resource practices, such as regular employee handbooks and workplace policy reviews.
Partner with a reputable independent agent
Independent insurance agencies contract with several insurance companies, not just one. In challenging market conditions, an independent agent has the knowledge and resources to help you navigate many policy options. An independent agent will also strategize with you to determine the best course of action when building your insurance portfolio.
What can FOA do for you?
Our team is experienced and has the knowledge to help businesses in a complex market. Several of our teammates have endured the challenging markets of the early 2000s, 2008-2010, and COVID. We are ready for the new challenges upon us.
Get started by texting us at (858) 348-1506. Let’s talk.