Ask recent renewers of general liability coverage to characterize the market, and you’ll get three very different answers. A few will insist that policy costs are not actually increasing a great deal. Most others will say premiums are getting quite pricey. Still others will speak about mind-bending, triple-digit increases in the costs of general liability policies.
All three are right. In the wake of 9/11, general liability insurers are charging more for their products. Just how much more often depends on how much time a company spent in court last year.
According to insurance brokers, corporations that steered clear of employee or shareholder lawsuits the last few years are being asked to pay modest increases in their general liability premiums. How modest is modest? Brokers says rates for the best risks went up about 12 percent during the recent policy renewal season. Considering the hefty increases in property and workers’ comp insurance of late, 12 percent isn’t bad.
On the other hand, companies that spent an average amount of time in court — just an average amount, mind you — are being asked to pay around 50 percent more for their general liability coverage. Further, brokers say companies that found themselves on the wrong end of a slew of lawsuits are being socked with rate increases of 100 percent.
There is good news for risk managers, however. According to Pat Gallagher, CEO of insurance broker Arthur J. Gallagher & Co., the increase in general liability premiums is likely to slow over the next few years. Still, brokers say CFOs should not expect the seller’s market to go away anytime soon. Looking ahead, “insurance premiums will continue to increase every year for the next three years,” predicts Gallagher.
The prognosis is hardly surprising. Insurance providers are still reeling from the effects of September 11. Certainly, insurers aren’t going to commit capital if they can’t generate a return on their investments. And right now, insurance carriers are getting bupkis on their general liability investments. Gallagher claims insurers are paying out about $1.10 in claims for every dollar they collect in general liability premiums.
Still Lurking About
Economists and other financial gurus point out that, generally speaking, it’s hard to make a profit if you pay out more than you take in. Still, this seemingly dire situation for insurers doesn’t yet resemble the liability crisis of the late 1980s. Back then, many insureds simply could not purchase general liability coverage — at any price. Janis Berger, managing director at Marsh, says most companies will still be able to buy general liability coverage in 2002 — if they’re willing to pay for it.
In fact, there’s actually been an influx of new general liability capacity of late. Over the last six months Aon, Marsh, and several other insurance industry players have launched new Bermuda-based insurance and reinsurance facilities. All told, Gallagher estimates, the players have plowed about $14 billion into new insurance facilities. “In general, Marsh doesn’t expect capacity to shrink during the foreseeable future,” says Berger.