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TRV The Travelers Companies Inc

228.83
0.00 (0.00%)
Pre Market
Last Updated: 09:24:01
Delayed by 15 minutes
Share Name Share Symbol Market Type
The Travelers Companies Inc NYSE:TRV NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 228.83 0 09:24:01

Insurers Drive Up Prices for U.S. Businesses

11/02/2020 10:59am

Dow Jones News


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By Nicole Friedman and Leslie Scism 

U.S. companies are paying more for insurance, a reversal after years of flat or declining rates for property and liability policies.

Insurers have raised prices aggressively in the past year on companies of all sizes across the country. And they have warned price hikes are likely to continue.

The turnabout underscores a challenging landscape for U.S. insurers following several years of large catastrophe losses and continued low interest rates, which have weighed on their investment returns.

Pretax operating income for the U.S. property-casualty insurance industry fell by 8% from 2014 to 2018, even as revenue from insurance premiums grew, according to ratings firm A.M. Best. Excluding investments and other income, the industry lost money from underwriting in 2016, 2017 and 2018.

A retreat from some accounts and lines of business by two major insurance players, American International Group Inc. and Lloyd's of London, has also helped drive prices higher, according to brokers and underwriters.

Texas Roadhouse Inc. was hit with price increases of more than 20% for some of its coverage.

"This is the first year we've seen where it really didn't matter what your loss history was," said Patrick Sterling, who oversees risk management for the restaurant chain.

"You've had no losses? You're still seeing the increases," he said. "And that certainly creates some frustration."

Prices on nearly every type of insurance are rising, according to insurers and brokers. An exception is workers' compensation, which is highly regulated by states. Excluding workers' compensation, rates for property-casualty insurance sold to businesses rose 6.7% from a year earlier on average in the first three quarters of 2019, on track for the highest annual increase since 2003, according to brokerage Willis Towers Watson.

The Children's Shelter, a nonprofit in San Antonio that works with foster children and children who have been abused, expected its insurance costs this year to rise from last year's $176,000 because the organization grew. But when it received a renewal quote of $750,000, "my mouth hit the ground," Chief Executive Annette Rodriguez said.

"We started having real conversations about, 'This is a deal breaker. We cannot maintain insurance premiums at this level,'" she said. The organization ended up buying coverage from a nonprofit insurer specializing in nonprofits for $315,000.

In an earnings call last week, Chubb Ltd. Chief Executive Evan Greenberg listed rate increases ranging from 3% to 33% across its various products globally. Increases averaged 8% for U.S. commercial buyers. Some of Chubb's biggest hikes were for property, excess-casualty and management-liability insurance for large U.S. corporations.

"There's nothing that I see that tells me the momentum will slow," Mr. Greenberg said. "If anything, it's picked up."

Insurance is a cyclical industry. During periods without catastrophic claims, insurers compete for customers by lowering prices. Following large natural disasters or other big losses, they typically raise prices or reduce exposure to certain risks.

The current price increases are partly due to hurricanes, wildfires and other catastrophes in 2017 and 2018 that cost the global industry more than $200 billion.

Even following these big events, insurers are well-capitalized and aren't in danger of running out of money to pay claims. But insurers' profits are being squeezed by low interest rates, which reduce income from the premiums they invest until needed to cover claims. They also face rising prices for their own insurance, so-called reinsurance.

"You keep hoping things are going to get better," said Bret Ahnell, executive vice president at FM Global, a specialist in property insurance.

Prices charged by FM Global declined steadily between 2003 and mid-2018 before starting to move higher. Industrywide, "people just finally said, 'We can't operate under these conditions anymore,'" Mr. Ahnell said.

Insurers say they are also paying more for noncatastrophe claims. Property losses from building fires and mechanical breakdowns have mounted, said Joseph Peiser, global head of broking at Willis Towers Watson.

Some insurers have responded by reducing the maximum coverage they will provide in a policy, he said. "Insurance companies are not willing to take a significant bet on any one company," he said.

In recent months, insurers have cited "social inflation" as a cause of increased liability-insurance claims. Industry executives say there is a greater tendency to sue insurers and for juries to hand out higher awards.

While insurers are used to lawsuits over big insurance policies, "what we're seeing now is the attorney participation spreading into...small accounts," said Travelers Cos. Chief Executive Alan Schnitzer on a January earnings call.

Joanne Doroshow, executive director of the Center for Justice & Democracy at New York Law School, disputed that insurers need to raise prices to address lawsuits or large jury payouts.

"There exists no litigation data whatsoever to support the notion that claims are spiking," she said.

Dual turnaround efforts by AIG and Lloyd's have also been a catalyst for price increases.

AIG has spent several years improving profit margins that suffered in the aftermath of its 2008 federal bailout, including reducing its commercial premium volume.

In 2016, AIG's net premiums written declined by more than 17% to about $17 billion as the company began to overhaul its book of business.

Since then, the new leadership's moves include shrinking policy sizes by tens of billions of dollars in the aggregate, AIG President Peter Zaffino told investors in December. "The market has to absorb that," he said.

Write to Nicole Friedman at nicole.friedman@wsj.com and Leslie Scism at leslie.scism@wsj.com

 

(END) Dow Jones Newswires

February 11, 2020 05:44 ET (10:44 GMT)

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