Do you know that the coronavirus outbreak has not only affected the health of many thousands of people but also hundreds of businesses worldwide?
Numerous Small to Medium Sized Businesses, even in the USA, are bearing the brunt of it, especially if they deal with imported products. With their manufacturing units located in China and Korea, these businesses are trying to find out how much they have lost and what cover their insurance will offer. Even insurers are suffering losses, with the toll on life and business growing and more claims being made. If this continues for long, look for insurance premiums to shift upwards across various categories pretty soon.
Such unexpected changes in the world around us often affect insurance premiums. I don’t mean just the specifics. For instance, some insurance companies exclude viral/bacterial outbreaks from their policies, and you must be aware of the same. But this is not about those specifics.
Let’s talk about some global factors, the stuff that we see in the headlines, affect insurance premiums. The more you know the better you will be able to balance your options carefully and choose the best protection for your business or life.
Huge losses due to natural disasters
Whenever there’s a large-scale crisis, insurance rates increase. This is because the carriers suffer massive financial impact at such times. Natural disasters like the hurricanes Irma and Maria caused more than $50 billion of losses. The California wildfires and hurricane Michael in the second half of 2018 caused a further loss of above $35 billion. These catastrophic losses have a huge impact on the insurance companies too because of steep payouts and underwriting losses, resulting in a steep rise in insurance rates. The thing is, even though these disasters may be restricted to certain areas, there could be a knock-on impact on insurance premiums everywhere because of the interconnectedness of the insurance ecosystem at the back end.
Technological disruption and changing work scenario
The headlines tell us that business, property, and cars are also suffering from the assault of advanced smart technologies. Computer-powered intelligence has crept into all these ecosystems. AI and robotics have automated key functions. Of course, this is a great benefit. But changing circumstances mean changing risk perceptions too. The advent of technology-led disruption has increased liabilities, cyber exposure, and the costs of repair and replacement. Networked systems and the growing use of the Cloud in business have also created complications in threat outlook and management. For sure, all of this will impact insurance premiums.
Workplaces are changing too. This is bringing in new employment practices like remote working and gig workers. California’s AB5 legislation has changed the status of contractors and equated that with employees. This has obvious implications on policies like worker’s compensation and liability. That implication is not restricted to CA, of course, as insurance companies try to predict the likely response of other states.
Social factors like the #metoo movement
The exposure the #metoo movement got was an eye-opener. The sheer number of individuals, high-profile companies, and big-name institutions under the scanner proved that sexual harassment and misconduct was a serious, and unfortunately, widely prevalent issue. And that has a wide insurance implication. Insurers have reported a 50% increase in sexual harassment claims over this period. While multiple legal proceedings were carried against the accused individuals, including CEOs, managing directors, A-list actors, and other professionals, the insurers received several EPL (Employment Practice Liability) claims. The insurance providers were forced to implement changes in their EPL insurance policies, increasing premium rates and even denying cover to specific companies.
There is news that home mortgages and insurance players are carefully modeling the possible impact of environmental factors. This is in the spotlight now because some of the climate change scientists are predicting visible impact within the next few decades -a blink of an eye in economic terms. Premium costs depend on the likelihood of a rise in claims, which is, now, influenced by environmental factors like climate change. The factors that the underwriter’s actuarial whizzes will try to bake into their algorithms will include the possibility of extreme weather events and the damage from those, the areas most at risk, and the scale of the fallout.
In uncertain times, it’s difficult to get the support you need even from those insurers, who may have previously stood by you when the going was better. This is where your relationship with your agency will play its part. Your insurance agent should help you understand some of these imponderables the suggest ways to get the most out of it.
Of course, you should keep in touch with the headlines. That will allow you to assess what’s happening around you and how that could impact your business. When external factors raise the stakes and drive up insurance premiums, you may find it less stressful if you are better prepared.