Insurance Pulse – A Mid-Year 2022 Glimpse
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Did You Know – Prices in 1965 vs 2021
- A loaf of white bread was 25 cents in 19651, and in May 2021 a loaf of bread was $2.542
- A dozen eggs were 53 cents in 19651, and in May 2021 a dozen eggs were $1.632
- A pound of bacon was 69 cents in 19651, and in May 2021 a pound of bacon was $6.482
- A gallon of milk was 95 cents in 19651, and in 2021 a gallon of milk was $4.77.2
But the NASW endorsed Professional Liability policy premium is the same. No price hikes!
Since May 2021, inflation has spiked prices further and is running at over 8% annually.
So what is happening in the insurance market? As Yogi Berra once said (MLB Yankees catcher), “It’s tough to make predictions, especially about the future.” But here is some data that describes the situation today, and it is continuing to be foreboding.
Insurance premium rate hikes started to occur in late 2018, continued as a “hard market” through 2021, and rate hikes continued into 2022. Marsh reported in the Insurance Journal (November 16, 2020, p.-10) that the “professional lines” product segment, which includes professional liability and malpractice liability policies, sustained premium rate hikes of 40% on average during 2020.
On the investment side, the Deloitte Center for Financial Services, in its survey of 200 industry leaders, reported in December 2020 that the “hard market” was upon us and shall continue. It has continued. According to SwissRe Institute’s most recent study, premium rate hikes are attributable to increased demand for coverage coupled with a continued “hard market.”
“Hard market” is insurance-speak for increasingly high premiums and carriers exiting the market due to rising claims losses, making coverage more difficult to obtain (Insurance Journal, p.-18, December 20, 2021).
This alarming supply-side situation is higher inflation and a severe reduction in investment gains reserved for claims losses. (Ibid, p.-21) As you may know, the stock market has taken a significant hit. In 2022, the benchmark S&P 500 index fell 20% from its January high, and the NASDAQ down 30% compared to November 2021. (Forbes.com, May 12, 2022)
These losses reduce investment gains on reserves that insurance carriers must maintain under insurance regulatory requirements to pay for future claims. Premiums must then increase to fill the gaps. Insurance carriers use many tactics to stem claims losses and dilute their liability policies by increasing sub-limits on specific frequent claims. The insurance carriers also eliminate certain perils previously covered by the liability policy and charge endorsement fees for the same perils to increase premiums. For many years, the low-interest rates in the U.S. have minimized investment returns on surplus reserves, and high jury awards and legal settlement costs also add to the challenges. (Ibid)
On the demand side, Fitch (one of the top 3 credit rating agencies along with Standard & Poor’s and Moody’s) expects 2022 to be the fifth consecutive year of price increases. (Ibid) Price hikes are spiking exceptionally high in Cyber Liability lines. In 2022, expect premium increases from 50% to 150%. (Ibid) Inflation is continuing, which further exacerbates the challenge. Wholesale prices accelerated in April 2022 to 11%, and the CPI (Consumer Price Index) increased 8.3% year-over-year. (May 12, 2022, U.S. Department of Labor)
You are in good hands despite the preceding depressing facts as an NASW Risk Retention Group policyholder. The NASW RRG shall continue to maintain the most comprehensive insurance coverages in the nation and at the unchanged and lowest premium prices for Professional Liability, General Liability, and Cyber Liability insurance policies.
It is a well-run mutual insurance company that the NASW RRG policyholders own, and it is proven fiscally responsible with the A.M. Best “Excellent” rating.