AN OUNCE OF PREVENTION.

AuthorThiede, Barbara
PositionBrief Article - Statistical Data Included

Be Prepared for Rising Business Insurance Premiums

How many businesses owners have found notices from their insurance companies in the mail announcing not just rising rates, but in some cases, exploding ones? Industry experts say any company that didn't get hit with an increase for this year can call itself a very lucky exception indeed. Those same experts report anything from relatively low increases to ones that quadrupled the cost of insurance coverage. They say 15% increases were the norm. And that wasn't the worst, particularly if the company submitted major claims in the recent past.

"We're seeing 30%, 40%, 50% for people who've had claims issues," says Richard Haar, area sales manager for Raleigh-based BB&T Asura. "And we've seen some doubling, although that would be the extreme case. Everyone can expect a rate increase -- across the board and across the country."

Rates have been rising steadily over the last six months, and those in the know expect that trend to continue for the next 12 to 18 months. But why, after nearly a decade of competitive low rates, the sudden uproar? A number of long- and short-term developments explain why businesses were hit with substantial premium increases.

"Everything runs in cycles," Haar says. "For the last nine years, competition has been very fierce and premiums have been below profitability." Insurance companies "run in a pack," agrees Bill Yaeger, president of Charlotte-based McNeary Insurance Consulting Inc.

But rate increases are hardly a result of a whimsical wish to turn and run the other way. In the past decade, insurance providers expanded their profitability through investment. Now that the stock market has flagged, returns on investment have not covered the losses incurred by low premiums. "Returns have been miserable," Yaeger points out, "so underwriting losses with investment doesn't work."

Developments in the healthcare industry haven't helped. In the face of national health legislation, HMOs once were able to hold down rates artificially. They were going after market share, says Scott MacEwen, senior vice president of sales for Lancaster, S.C.-based Kanawha HealthCare Solutions Inc. The result? Competitive rates. They hoped, MacEwen says, to manage and control the danger of high claims. But they couldn't and didn't. After a few years, HMOs found they were incurring heavy losses.

HMOs rely on managing care and avoiding heavily invasive medical approaches. They look toward pharmaceutical methods before surgical ones. That might seem like a good way to save on medical costs, but not if the goods at the drugstore are going up 20% to 30% in price. HMOs recently have seen drugs taking up a larger and larger portion of medical costs.

Also, legislators have sided with efforts to ease rules against suing HMOs and that pushes prices up. "People are scared to death what effect this will have on the cost of purchasing those types of coverage' says Matthew Snook, former Fortune 500 management consultant and now vice president of benefits services at AdvanTech Solutions, based in Tampa, Fla. "Legislators are listening to the desire to sue more, but they're not thinking about the ramifications of that decision - and the costs will be...

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