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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance explores the challenges presented by today's business and economic upheaval, as well as the hardening insurance market, and what it means for the captive insurance industry.

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Commercial Insurance Premium Hikes Hit Double Digits in Second Quarter

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August 28, 2020

The average commercial insurance premium price increase reached double digits in this year's second quarter, according to the Council of Insurance Agents and Brokers (CIAB) Commercial Property-Casualty Market Index.

According to the CIAB, survey respondents reported slight to significant increases for all account sizes and lines of business, including workers compensation. The average premium price increase for all-sized accounts in the second quarter was 10.8 percent, compared to 9.3 percent in the first quarter and 7.5 percent in the fourth quarter of 2019.

Second quarter increases for umbrella and directors and officers (D&O) coverages were the highest among all lines at 20.0 percent and 16.8 percent, respectively. The average second quarter premium increase for commercial property was 13.3 percent, with commercial auto increases at 9.6 percent. Workers compensation recorded the first average price increase in 21 quarters at 0.7 percent.

"While workers compensation decreases have often offset increases in other lines, this line of business may have reached an inflection point in Q2 2020," Ken A. Crerar, president and CEO of the CIAB, said in a statement. "And though increased pricing was evident in previous quarters, it is also clear COVID-19 has had an impact, ushering in new pandemic exclusions, more scrutiny for new business, and significantly decreased capacity for related lines."

In the second quarter, 70 percent of respondents reported a decrease in capacity for umbrella, D&O, and commercial property coverage. Respondents also indicated that insurers continued to reduce umbrella limits while raising premiums and increasing deductibles, citing social inflation and the increasing frequency of "nuclear verdicts," as well as a hardening reinsurance market.

Insurers also increased scrutiny of D&O coverage, adding more questions for new or renewal accounts, including questions about COVID-19 risk.

Brokers also saw the impact of COVID-19 in increased demand for business interruption (BI) coverage as well as an increase in BI claims. While BI claims increased in the second quarter, the CIAB noted that those claims won't necessarily be successful. Indeed, some survey respondents noted that their clients filed BI claims to ensure that they were on record as having a loss in the event there should be a landmark court decision regarding pandemic-related BI claims, the CIAB said.

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