Continued hard market expected for insurance industry

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President Bush signed the Terrorism Risk Insurance Act into law in late 2002, hoping to boost a national insurance market fallen on hard times. If the plan comes to fruition the industry may get its shot in the arm but not in 2003, according to Randy McConnell, spokesperson for the Missouri Department of Insurance.|ret||ret||tab|

"2003 should be much the same," McConnell said, meaning renewal rate increases across the board but possibly not as severe as feared.|ret||ret||tab|

While designed with good intentions, the terrorism insurance act's immediate impact might actually be prohibitive, McConnell warned. |ret||ret||tab|

"In the long run, the authors of the federal legislation anticipate that it will result in broader coverage, more stable and perhaps lower pricing," he said. "However, companies should be prepared."|ret||ret||tab|

President Bush claims the act will inject $15 billion into commercial construction projects that have stalled since Sept. 11 due to the lack of terrorism insurance, and create 300,000 new construction jobs across the country. But in reality, McConnell said, the law may inflate initial costs for property owners seeking the terrorism coverage. Due to the federal government's financial backing, the coverage will be available to many more consumers than before but at a premium rate. |ret||ret||tab|

"The question is whether an area like the Ozarks will want to buy that," McConnell said. "At least they will have the option."|ret||ret||tab|

Other options, such as the number of commercial lines available, diminished in 2002, along with the industry's total capital. The end result was higher renewal rates, some as high as 70 percent locally. |ret||ret||tab|

According to Dick Jackson, president and CEO of Barker Phillips Jackson, the lines available to underwriters are down about 50 percent, and insurance company capital is reduced by approximately 25 percent. Both will have to increase to previous levels before rates level off, Jackson said.|ret||ret||tab|

Larger claims and insurance companies' sagging investment incomes largely due to the stock market woes also contribute to increased rates.|ret||ret||tab|

While it is unclear if any turnarounds will occur in 2003, Nixon & Lindstrom Insurance's Luke Nixon has hope for smaller increases. Although it's hard to nail down exact figures in an industry dominated by variables, Nixon said, "The small-business owner (in Springfield) can expect 10 percent to 15 percent rate increases this year."|ret||ret||tab|

That is assuming the company's loss history has been good. However, he said increases in naturally high-risk lines, such as multifamily property and trucking, will be greater than that.|ret||ret||tab|

Dennis Chappell, part owner of local trucking insurer PJC Insurance, said the scarcity of policies is impacting the rates in his markets.|ret||ret||tab|

"It makes it very difficult for us to find companies that are willing to write, especially in the higher risk industries," Chappell said. "That scarcity drives the price up. I don't see it as a year for the rates going back down in any areas, really."|ret||ret||tab|

Employers' health care costs also are expected to increase at a double-digit pace in 2003, according to the National Health Care Trend Survey released Dec. 18 by Buck Consultants Inc. The survey of nearly 100 health insurers, health maintenance organizations and third-party administrators is in its ninth year by Buck Consultants, a New York city-based human resources consulting firm.|ret||ret||tab|

The survey reports that preferred provider organization plans are expected to increase 15 percent, next year, while point-of-service plans and HMO plans anticipate jumps of 14.8 percent and 13.8 percent, respectively. Prescription drug coverage is expected to increase by 15 percent.|ret||ret||tab|

In Missouri, McConnell said, "There continues to be a push for higher rates, particularly for HMOs." |ret||ret||tab|

2002 figures are not in, but in 2001 Missouri HMOs increased 21 percent, which was more than 50 percent higher than the national average, he said. "That appears to have continued this year, although (2002) data will not be available until June." |ret||ret||tab|

McConnell added that there is still some upward pressure on pharmacy costs in Missouri, which could affect rates.|ret||ret||tab|

Overall, the insurance market should not see another knee-jerk reaction like it did in 2002, Nixon said.|ret||ret||tab|

McConnell agreed: "There may be some lesser rate increases, but in terms of prices heading back down, which is typical in the insurance cycle, the rates should stay firm at least."|ret||ret||tab|

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