Why Your Insurance Premiums Rose This Year Even Though You Didn't Have Any Losses

Why am I being cancelled / insurance rates going up, I have not had any losses?

If you have had your renewal already, then you have most likely experienced a drastic change in how you purchased your commercial insurance. In the past few years, there has been a major increase in wood products property losses. One could point to many potential causes for this with the upturn in the wood products industry market. Some mills are now running at 100% capacity that have been operating on a skeleton crew since 2007/2008. With a desire to make hay while the sun is shining, some mills are pushing production over safety or taking short cuts on cutting welding procedures and some is just bad luck. The results of this have hardened the insurance industry for wood products.

So what’s changed?

There have been many changes due to the large quantity of losses within the wood products niche such as several carriers exiting the industry which puts a strain on the remaining carriers. With the lack of competition for this industry, terms will change and pricing will inevitably increase. With competition between the major players (one of which has been merged with another carrier, one has exited the wood industry, and two that are on the fence) the pricing of insurance has been lowered over the years to an unreasonable range where a carrier cannot afford to write this line. Some carriers will continue to come into the market and provide very low rates until they have some losses, then they will pull out as we have seen in the past. There has also been constricting of capacity which inhibits the remaining carrier’s ability to write accounts over a certain size.

What can I expect?

Depending on your size and what you do; you may see any one or more of the following:

1. Cancellation letters, even if you have not had any major losses.
2. Layered programs: this is where two or more carriers join together to write your coverage.
3. Stop Losses: This is where a carrier may only offer up to a certain limit of exposure on the property such as 25 million or less.
4. E&S carriers: While not necessarily a bad thing, these are not admitted by the state and may provide limited coverage compared to an admitted carrier.
5. Splitting your coverage with several carriers. Property with one carrier, Workers comp with another, etc.
6. Separate policies for companies with several locations.
7. Pricing changes. Some companies are seeing premium increases as much as 4x what they were paying last year.
8. Terms changing: insuring to value conditions/ Coinsurance. Deductibles increasing, etc
9. Working through wholesalers.

So, what should I do?

1. Start early. Especially if you are a sizeable operation with over 10 million in property/ Business interruption values. You don’t want to try start your renewal process 30 days from your expiration date.
2. Ask your carrier what their intentions are for the renewal.
3. Budget for the impending changes.
4. Get with an agent that understands and works within your industry and has more than just one carrier to work with.
5. Get creative or find an agent that offers you options. There are several ways to lower your costs other than just going with the cheapest price.
6. Make your property insurable. I have been inspecting operations for years and I always gave better pricing/ terms to those operations that prepared for my visit. Feel free to contact me for a list of things to do to prepare for an inspection.
7. consider installing sprinklers or a fire pump and pond to add protection to your property.
8. Be Loyal as much as you can to those carriers in the wood products niche. These are the companies that help fund your associations and give money to support your state and federal efforts on your behalf. We need to think long term.

What can we as an industry do?

While there is not an easy answer to this, awareness is a start. Having our members aware of the changes potentially coming is one of the reasons this organization was established (sharing information). While one might argue that insurance is the law of large numbers, this industry has a history of large infrequent losses which bring down wood products niche carriers. 20 years ago there were over 12 wood products insurance carriers. Now we are down to maybe 3 that do the mfg operations. We do not want to be a niche without a carrier to support this industry. See #8 above.

If you have topics you would like covered or would like a second opinion on your current insurance program, please contact us.