Insurance Pricing in
Commercial Insurance

Insurance pricing runs in cycles. When insurance companies are making money, underwriting guidelines are thrown out the window and companies fight for market share by lowering premiums. When prices get so low that the bottom line turns red, insurance companies feel the need to raise prices, cancel unprofitable accounts, and insure only accounts which fit underwriting guidelines. This is a vicious cycle where clients enjoy times when pricing is on the decline but often don't plan for the bad times. What it boils down to is a matter of statistical logic and insurer psychology. If catastrophic losses occur like a hurricane or giant jury awards occur, actual or merely perceived, insurance companies react by canceling entire lines of insurance or raise premiums for everybody until there is some hope of making a profit. The last hard market was in the mid 1980's, so it has been a while since the consumer has experienced a hard market. Investment income offset underwriting losses the past several years, but now the rate of return isn't there so companies are reverting back to underwriting for a profit. This means premiums often bear no relationship to an individual policyholder's record, and insurance buyers suddenly experience large rate increases and, in some cases, cancellation of their insurance. Some insurers shy away from covering certain types of risks at any prices. If there is no way of figuring what kind of damages a jury might award to the parents of a child molested at a day care center, for example, companies decide it best to stop writing that kind of insurance altogether. The market will turn once companies raise prices enough to show an underwriting profit and the cycle will start all over again. In the meantime, our best advice is to implement safety programs to make your account more desirable, insure with an agency specializing in commercial insurance, and budget for higher insurance costs. Assuming more of the risk yourself can often offset higher insurance premiums. Your insurance professional should discuss higher deductibles and possible exposures you might self-insure.