Here’s a surprise.
Less than a year after the 9/11 terrorist attacks, businesses cut their liability insurance for the first time in six years. This, according to a new report by Marsh Inc.
The insurance broker and risk management services firm reported that companies cut their liability insurance limits by an average of 6 percent in 2002. The reason: Rising insurance costs, which increased even more after the attacks.
Companies that have experienced large losses, or those in industries considered to be “high-risk,” faced the most dramatic price hikes. These companies reduced their insurance limits the most, according to the insurer.
For example, chemical and pharmaceutical companies experienced, on average, a 22 percent decline in coverage limits, Marsh pointed out.
Which companies experienced the most significant reduction in limits? Companies with annual revenues of more than $10 billion. Those businesses reported a 10.4 percent decline in maximum potential payoffs from liability policies.
That’s quite a turnaround from 2001, when large revenue companies increased their limits by a little over 11.2 percent.
Not all companies cut their limits, however. Those with annual revenues of $1 billion to $10 billion showed virtually no change in limits purchased in 2002 compared with the prior year.
“For the largest companies, higher insurance costs were the biggest drivers for the cutback in limits,” said Timothy Brady, a managing director of Marsh. “For smaller and mid-sized businesses, budgetary issues in a sluggish economy continue to be a challenge as costs for all lines of commercial insurance continue to escalate.”
The Marsh report was based on information gathered from over 3,600 companies. The survey was limited to general commercial liability insurance, automobile liability, and workers compensation.