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Washington Businesses See Higher Insurance Rates in 2013

Commercial insurance rates for Washington businesses are on a slow-paced assent. Like most industries, price inflation has a lot to do with supply, demand, and profit.

The insurance industry makes money two ways, premiums and investments. Money is lost through claims. The insurance industry is currently experiencing high claims–especially in property coverages–and weak investment yields.

After a spike in commercial insurance rates following 9/11, the year 2002 began a period of high competition resulting in lower premiums. However, according to the Insurance Information Institute, rates have risen steadily (by 7%) since 2010.

“I’m mostly seeing modest increases for Western Region businesses with good claims experience and exposure for their industry,” said Greg Collins, CEO of commercial brokerage firm Parker, Smith & Feek. “The insurance sector remains competitive, but weather related claims over the past several years, including storms like Superstorm Sandy, are spurring adjustments.”

In 2011, the global insurance industry saw natural disaster damages spike to an estimated $300 billion, the largest in history. Domestic insurers are still waiting for the total expense of Superstorm Sandy. Massive claims may cause investment in the insurance industry to slow further, and ignite a rise in premiums.

“As dismal as our northwest weather seems, it’s moderate compared to the rest of the country. Insurance carriers who’ve tried to significantly increase rates here, to compensate for property losses in other regions, have lost business,” Collins said.  “Insurance is a global industry now, just like banking, and industry wide losses can affect us all.  Fortunately, the impact is not as deep here as other parts of the country or world.”

Insurance carriers are warning businesses to expect increases in insurance premiums for directors and officers (D&O), commercial errors and omissions (E&O), and cyber insurance.. These policies have become more costly due to a steady increase in lawsuits and cyber criminal activity.

In Washington State specifically, employers have been given a reprieve in 2013 from the trend of rising workers’ compensation premiums. They should expect to see some increases to their general liability premiums, because regional claims are increasing after a period of relatively low rates over the past five years. The marine industry may see insurance rates increase due to the closing of a major carrier, SeaBright. Local property insurance is rising due to lowered investment forecasts by the insurance industry. Earthquake insurance is going up as a result of new industry-wide disaster modeling, recognizing Puget Sound’s place in the infamous “Ring of Fire.”

Each business has their unique exposures, and some are more vulnerable to market fluctuations than others. The proviso against increasing commercial rates, according to Collins, is a good claims history brought about by effective operations. If a business has high claims, they should expect higher premiums.

“It’s the normal order of things,” he said.

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