Consumer-driven health insurance tempers upward spiral

The largest loss in U.S. history, Hurricane Katrina, is estimated at $34.4 billion. Hurricane Rita is estimated at $4.7 billion and Hurricane Wilma is now being estimated at approximately $10 billion.

Catastrophic losses of $50 billion in a single year would make even the strongest industry gasp for air.

Another punch to the industry continues to be rising medical insurance costs. The estimated trend for 2005 is between 10 percent and 15 percent, depending upon plan design.

With all the usual and unusual events, what can businesses expect from the marketplace in 2006?

Prior to the hurricanes, the commercial and casualty marketplace pricing was soft, or declining, for most types of business. Overall average pricing in 2005 was down approximately 4 percent nationwide. This pricing did vary, depending on the type of business and its loss history. The health insurance market continued its upward trend in 2005 with prices varying widely, depending on loss experience.

The New Year will likely prove to be a rational marketplace, with underwriting characteristics such as loss history, type of industry, location, financial performance and current business practices having a more dramatic impact on pricing. Insurance underwriters will be more disciplined in their approach to pricing, relying upon the past history of an account's financial, loss and industry traits.

Capital continues to enter the marketplace as new reinsurers are launched in both London and Bermuda - world centers of reinsurance industry activity. This new capital might help temper increased pricing.

Bigger buyers of insurance appear to be stabilizing their pricing with sound risk management practices and by increasing deductibles. Small- and medium-sized accounts are seeing more volatility, again, based on loss experience, location and industry type.

Commercial property premiums hammered by the hurricanes saw rates grow an average of 5 percent, while business income premiums rose 6 percent and directors and officers rates rose 2 percent. The energy sector, also hit hard by the Gulf hurricanes, has experienced rate increases of 11 percent, with more modest increases reported by transportation and public entity risks.

Predicting isn't easy

It is, however, becoming extremely difficult to generalize about current and future pricing. Insurance carriers are not blindly stampeding one way or the other.

Individual accounts are being underwritten carefully and being priced accordingly.

It's extremely important to present information on your business to the marketplace in the best light. Currently, valued loss information, written safety programs, policy/procedure manuals and good financial performance will enable underwriters to price accounts more aggressively. Be sure your Web site is up-to-date and accurate, because underwriters are using this tool to review your exposure or risk.

Health insurance continues to spiral upward; however, consumer-driven health care is starting to temper this trend.

Health Savings Accounts are starting to gain traction. Eight percent of large employers will offer them this year, and 18 percent are planning to do so next year. Today, more than 1 million Americans are enrolled in HSAs.

As consumers participate in more of the cost of high deductible HSAs and other plans, they tend to become more astute consumers of health care. This seems to be slowly tempering increased costs, with 2006 trends projected between 9 percent and 14 percent, down 1 percent from 2005.

While the New Year brings some uncertainty in insurance pricing, one thing is sure: Businesses who can demonstrate superior past performance in losses, business practices and profitability will fare much better than those who can't.

Unless a booming stock market begins to drive up investment income for insurance companies, look for carriers to keep pushing to write insurance for a profit and cut prices only for those who earn it.

Richard Ollis is president/CEO of an employee- owned, independent insurance agency, Ollis and Co.

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