Masonry Magazine August 1976 Page. 21
WATCH THOSE INSURANCE COSTS!
By Walter T. Derk
MCAA Insurance Consultant
Fred. S. James & Company
Most MCAA members are probably aware that something is going on in business insurance circles, but it may come as a big surprise to learn just what it is.
To begin with, casualty insurance companies took a financial bath in 1975, with losses far in excess of break-even levels, even after investment income. One insurance company top executive told me how very pleased he was to have come out of it with "only" a combined loss and expense ration of 109%; last year that was considered close to winning, a lot closer than much of the competition did. It is too early to guess how 1976 premiums and losses will end up, but so far the results are not overly encouraging.
The reasons are many: Extraordinarily high Worker's Compensation benefit increases: Huge medical care bills: Inflated car repair costs: Higher insurance company payrolls and operating expenses: Increases in reserves on older open claims: Erosion of Statutes of Limitation, making it more difficult to consider a closed claim truly closed; Lifetime awards without dollar or time limits; Rehabilitation and job-training expenses for injured workers: A continually more claim-minded public: Liberal judges and juries.
In short, we have become a give-away society. And the time has come to pick up the tab.
What is Happening to Premiums
Until recently premium rate increases have been fairly predictable and localized. In Illinois, Worker's Compensation rates went from $3.65 to $6.83 per $100 of unlimited payroll within one year, much of it midterm, and much of it with little warning. Yet the insurance industry feels the new rates to be so inadequate to cover benefits-passed by a 2 to 1 majority of the legislature that they are refusing to accept the risk. Contractors of all classes are particularly being discriminated against.
Liability premium levels have jumped much higher than originally anticipated, and much quicker. This is a case where the insurance industry is working to get into the black but quick. Eighty percent or more increases are not uncommon, with many Umbrella policy premiums tripling or more. This is being coupled with more stringent underwriting rules, higher underlying primary policy limit requirements, and new coverage restrictions.
Higher deductibles are also being encouraged. For example, Automobile Collision damage is commonly being quoted at $200 or more deductible, Comprehensive damage at $50-$100 deductible. Actually, this makes good sense instead of trading dollars with an insurance company, always a losing proposition.
Performance Bonds
Contract bond rates are also trending up, although not alarmingly. Incidentally, there is very little behind any implied need to place your Worker's Compensation, General Liability, Automobile, Umbrella Excess, or Property Insurance with the same people who handle your Performance Bonds. Bond brokers are liberally compensated for their efforts; you need feel no undue pressure to repay the "favor" by blindly putting all your eggs in one basket. If it happens that both areas are best and most economically handled from one source, fine, but it is hardly a requirement. Quite often we find that the best bonding facility is not the best Casualty market.
Association Programs
Until rate levels catch up with actual loss ratios being sustained, the accent of Association programs must be less on dividend refunds and more on stability of market, broader coverage, loss prevention, claim control, and service considerations. Successful Association programs are continuing to fill this bill by providing a knowledgeable, competitive, receptive market open to new business. Nowhere is this more of an advantage than in the construction trades.
We are continually working with MCAA and CNA to provide just that kind of facility. Your Insurance Committee decidedly recommends that you take a long, hard look at the advantages of pooled buying power when your next policy anniversary date rolls around. A collect call to Fred S. James & Co., to my attention, at 312-346-3000 will get the job done, locally, without delay. Then the business decision is yours to make. But at these prices it surely makes sense to have a choice.
People are always blamming their circumstances for what they are. I don't believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want and, if they can't find them, make them.
George Bernard Shaw
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