Don’t Get Caught Short … Stay Ahead of the Curve!

For this month’s blog, we here at First Volunteer Insurance of Eastern Tennessee would like to bring you an update on two basic, but important segments of insurance; commercial property and general liability. There are some important trends in each that when analyzed, could save you money, increase your coverage and protection, or both.

Regardless of how much insurance you need, you should always check to make sure external issues have not affected your protection level. At First Volunteer Insurance we encourage you to ask us about whether your coverage is still adequate given the changing world in which we live. Let’s take a look at some of those recent trends and indicators

Commercial Property Insurance

The commercial property insurance market, both nationally and here in Tennessee, has steadily hardened in recent years, resulting in quarterly rate increases since Q3 2017. Unfortunately, these rate increases—as well as additional policy restrictions—are expected to continue in 2022. Yet, this market may showcase some signs of moderation compared to 2021’s trends.

Such unfavorable market conditions are the result of another intense season of natural disasters (e.g., wildfires, hurricanes, windstorms, hail and floods) and the ongoing COVID-19 pandemic. An uptick in losses stemming from these trends has forced commercial property insurance carriers to elevate policyholders’ premium costs and implement more restrictive coverage terms.

We predict that many insureds will experience single or double-digit rate increases, lowered available capacity, higher sub-limits, and various policy restrictions or exclusions—especially regarding losses tied to weather events or the COVID-19 pandemic. Policyholders who conduct high-risk operations with poor loss control practices or are located in natural disaster-prone areas may encounter more severe rate changes, higher retentions and decreased coverage limits.

Developments and Trends to Watch

  • Natural disasters—According to the National Interagency Fire Center, the 2021 wildfire season resulted in over 52,000 wildfires—burning more than 6.6 million acres and destroying thousands of structures across North America. In addition to wildfires, the NOAA reported that the 2021 Atlantic hurricane season produced 21 named storms, representing the third-most active hurricane season in history and totaling $70 billion in overall costs. As a whole, the NOAA recorded 18 natural disasters with losses exceeding $1 billion in the United States during 2021. What’s worse, many climate experts predict that both the frequency and severity of natural disasters will continue to worsen in the coming years. These catastrophes often leave behind devastating property damage for affected establishments, leading to significant rebuilding concerns. 

For an interesting look at the current wildfire maps for Tennessee, visit the TN Wildland Fire website HERE.

  • Supply chain and inflation issues—The COVID-19 pandemic has contributed to a range of supply chain disruptions within the past few years. Specifically, the availability of numerous building materials—namely, lumber and steel—dwindled throughout 2021 as demand for these items soared. As such, the price of these materials skyrocketed, thus inflating overall property construction costs. In fact, the Insurance Journal reported that property construction expenses increased by 8.1% between 2020 and 2021. Compounding concerns, ongoing worker shortages in the construction industry have led to elevated labor costs and project delays. Consequently, organizations may face unexpected costs, greater claims severity and possible underinsurance issues if a property-related loss requires them to rebuild. Although industry experts predict that surging construction costs will eventually subside during 2022, overall inflation issues are expected to continue—potentially keeping property rebuilding expenses and subsequent claims costs high for years to come.

Tips for Insurance Buyers

  • Work with your First Volunteer Insurance agent to begin the renewal process early. Many commercial property insurers are seeing an increased submission volume. Timely, complete and quality submissions are vital to ensure your application will be reviewed by underwriters.
  • Determine whether you will need to adjust your business’ retentions or limits to manage costs.
  • Gather as much data as possible regarding your existing risk management techniques. Be sure to work with your insurance agent to present loss control measures you have in place.
  • Conduct a thorough inspection of both your commercial property and the surrounding area for specific risk management concerns. Implement additional mitigation measures as needed.
  • Analyze your organization’s natural disaster exposures. If your commercial property is located in an area prone to a specific catastrophe, implement mitigation and response measures (e.g., install storm shutters on windows to protect against hurricane damage or utilize fire-resistant roofing materials to protect against wildfire damage) to protect your property as much as possible.
  • Develop a documented business continuity plan (BCP) that will help your organization remain operational and minimize damages in the event of an interruption. Test this BCP regularly with various possible scenarios. Make updates when necessary.
  • Address insurance carrier recommendations. Insurers will be looking at your loss control initiatives closely. Taking the appropriate steps to reduce your risks whenever possible can make your business more attractive to underwriters.

General Liability Insurance

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In recent years, the general liability market has consistently underperformed for insurance carriers. As claims have increased in frequency and severity, insurance carriers have responded by tightening underwriting standards, deploying less capacity and seeking rate increases. Despite recent trends, carriers have begun to see modest improvement in general liability results.

In 2022, we predict that most policyholders will encounter another year of modest rate increases for general liability coverage. Renewal results will likely depend on an organization’s exposures, class and loss history. Policyholders who operate in sectors with elevated general liability exposures (e.g., real estate, construction, manufacturing, retail, hospitality and contracting) may be more prone to double-digit rate increases and increasingly restrictive underwriting standards, as well as experience significant difficulties securing or maintaining higher coverage limits.

Developments and Trends to Watch

  • Social inflation concerns—Put simply, social inflation refers to the heightened frequency and severity of insurance claims. These rising costs are the result of societal trends and views toward increased litigation, broader contract interpretations, plaintiff-friendly legal decisions and large jury awards. Together, these factors can raise the cost of insurance. Currently, the primary factor influencing social inflation within the liability market is nuclear verdicts—especially in the case of commercial auto accidents and class action lawsuits. According to the latest data from industry experts, these trends have contributed to a more than 300% increase in the median value of major U.S. verdicts since 2014.
  • Surging single-fatality expenses—Single-fatality losses have become an increasingly prevalent concern within the liability insurance space over the past decade. Such losses can stem from various scenarios (e.g., on-site accidents, product defects and commercial auto crashes) in which organizations are held liable for the resulting fatalities. According to Advisen loss data, the median cost of a single-fatality loss spiked 67% between 2010 and 2020, jumping from $2.3 million to $3.7 million. Although these losses have occurred across industry lines, the manufacturing and construction sectors collectively contribute to more than one-third (35%) of overall single-fatality losses, primarily due to their high-risk operations. The increasing cost of such losses has been attributed to a rise in fatal incidents as a whole, social inflation and surging medical expenses. When single-fatality events arise, they are generally followed by wrongful death lawsuits. These lawsuits may result in a range of awarded damages—including medical costs, funeral expenses and lost wages, among others—thus leading to costly liability claims.
  • COVID-19 exposures—The early days of the COVID-19 pandemic forced many businesses to temporarily close their doors to avoid threatening the health and safety of their employees and customers. Although the economy largely reopened in 2021 and many businesses resumed their typical operations, continued infection hotspots and new variants have created ongoing COVID-19 risks and subsequent liability exposures. For instance, visitors or customers who get infected with COVID-19 after visiting a business may allege that the establishment’s lacking precautionary measures or failure to follow public health guidelines contributed to their illness. As such, pandemic-related lawsuits and associated liability claims have remained an ongoing concern.

Tips for Insurance Buyers

  • Work with your insurance broker to educate yourself on key market changes affecting your rates and how to respond using loss control measures.
  • Ensure your establishment has measures in place to reduce the potential for customer or visitor injuries (e.g., maintaining safe walking surfaces and promoting proper housekeeping).
  • Consult federal, state and local guidance to establish a safe reopening plan for your establishment with adequate COVID-19 prevention protocols.
  • Reach out to your insurance broker to review pandemic-related coverage restrictions.
  • Examine your general liability coverage with your First Volunteer insurance broker to ensure limits match up with your current  insurance needs.

For more business guidance or help making sure your business is protected, contact First Volunteer Insurance at 423-668-4888