Commercial Insurance Rate Increases in 2021
Increasing global warming-related disasters and social unrest drive commercial insurance rate increases in almost every category of commercial insurance in 2021.
Wildfires. Hurricanes. Civil unrest. Riots. Explosions. Pandemic… Across the US, they have been wreaking havoc since 2020. The increase in losses are real, and they are systemic. The insurance industry is bearing the brunt of losses and claims as global warming and human disasters are causing more interruptions and damages to businesses, life, properties and economy.
When insured losses — property, business interruption, umbrella and D&O particularly — have increased faster than the capital base of the insurance industry, insurers need more capital to absorb this increase, which leads to commercial insurance rate increases in 2021.
It is widely predicted that commercial property insurance in 2021 may see substantial rate increases due to COVID-19, civil unrest caused by political division, terrorism, and natural disasters.
Factors such as specific catastrophes, risk exposures, types of industry all play a role in rate. Companies with unfavorable loss history and deemed as high risk could experience a rate increase of 25% or more, as well as stricter policy terms and conditions, and higher deductibles. For entities with sound risk management, a favorable loss history and strong carrier relationships, rate may increase between 10% and 20%.
The most challenged lines are property, umbrella, cyber, D&O and fiduciary, employment practices liability. Rates, terms and capacity will continue their upward pressure from 2020 well into mid 2021. Unpredictability will remain in sectors such as manufacturing and food processing. In workers compensation, terrorism, the best that can be hoped for is flat renewals, but be prepared for an increased rate as well. Managed care E&O and D&O will see significant rate increases and coverage restrictions. It is a hard market in 2021.
CA Property Insurance Rate Hike in High Risk Areas in 2021:
As the numbers and sizes of wildfires increase over the past few years in California, many insurance companies have stopped covering them. In spite of California state legislature’s regulations to stop insurers from canceling existing policies, as many as 800,000 homeowners in higher-risk areas will not be able to find insurance since state regulations cannot be renewed.
Lacking insurance creates the domino effect that eventually will impact the real estate market in high risk areas: mortgage banks cannot lend to home buyers if homes can’t be insured, then people can’t buy homes or sell houses in high-risk areas.
California’s own state-run insurer (“FAIR” Plans) tend to be quite expensive and limited, nonetheless enrollment in these plans increased by more than half from 2019 to mid-2020. Rates in 2021 may rise 15.6%.
Cyber Insurance: Climbing Rates in 2021
More than half of the companies in the world were hit with a ransomware attack last year. More than 90% of the ransoms were paid by the insurance company, at around $761,000 per incident as the global average.
This year, cyber insurance rates are predicted to rise 10-25%, due to the frequency and severity of ransomware attacks.
A glimmer of hope
As new capital will flow into the insurance industry (as it already has), capacity will return and prices will moderate, likely in the 2nd half of 2021.
In hard times, relationships matter even more. We prioritize our relationships with clients and we want to be open about rate increases and be preemptive about what you can do to keep costs down.
We are the Extra-milers to protect businesses and properties
The Rick Callaway Team is known as the Extra Milers in protecting your business, employers, employees, and assets. We leave no stone unturned to get you the best deal. No under coverage. No overpricing. Fast turnaround, and most of all, we have board level business acumen for understanding your business operations and customizing coverage. Please call us for a free consultation: 925-788-5558 or email us at: rcallaway@pdins.com.
The above is a summarized version of the following:
https://woodruffsawyer.com/property-casualty/property-casualty-looking-ahead-guide-2021/
https://www.willistowerswatson.com/en-US/Insights/2020/11/insurance-marketplace-realities-2021