Soaring Insurance Rates

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National Public Radio (NPR) Morning Edition

BOB EDWARDS, host: Many businesses are getting a shock when they try to renew their insurance coverage. Premiums for property, liability and health insurance have risen sharply. A trade group says the average cost of business insurance has jumped by 30 percent, with some customers seeing even bigger increases. NPR’s Scott Horsley reports.

SCOTT HORSLEY reporting: The jump in insurance premiums around the country is striking.

(Soundbite of bowling pins being knocked down)

HORSLEY: Here at the Kearney Mesa Bowling Center in San Diego, premiums for Workers Compensation insurance have doubled in the last year. Health insurance rates would have gone up, too, had the center not switched to a stripped-down policy that requires higher co-payments from employees. Larry Linder shops insurance for this and hundreds of other bowling centers up and down the West Coast.

Mr. LARRY LINDER: My job is to hold the line on the escalating premiums and it’s very frustrating. The insurance industry right now basically has a take-it-or-leave-it attitude.

HORSLEY: The bowling center hopes to recoup some of its new costs by raising prices at the snack bar. So an order of chicken fingers may soon cost more. Price hikes aren’t much of an option for Dee Hanson, who’s facing an insurance shock of her own at Hanson Machine Shop just outside San Diego.

Ms. DEE HANSON: It’s very, very difficult. Just tighten your belts. If you want to stay competitive, you can’t pass too many costs on because you get underbid.

HORSLEY: Hanson’s small shop sells parts to a golf club maker and an off-road racing company. Her premiums for Workers Compensation more than tripled in the last year, even though she has a good claims history, and her liability insurance is going up as well.

Ms. HANSON: Ever since 9/11 it seems like the insurance companies have just gone crazy trying to, I believe, help pay off all the debt that they’ve incurred lately.

HORSLEY: Insurance broker Larry Shay(ph) hears similar complaints from all kinds of businesses. He says prices are on the rise nationwide for insurance, including property, liability and employee health care.

Mr. LARRY SHAY: A lot of folks are being really strained right now with the insurance costs. I mean, couple years ago, insurance was just a minor thing to talk about. Now almost in every board room, they’re talking about insurance.

HORSLEY: The insurance industry blames a variety of factors for the sharp jump in premiums, from costly asbestos lawsuits to a sudden upsurge in claims of household mold. P.J. Crowley of the Insurance Information Institute says September 11th is also a factor as carriers think seriously about the future costs of terrorism.

Mr. P.J. CROWLEY (Insurance Information Institute): This is a new risk really to our society, so this new risk is working its way into the insurance market. It’s going to literally take some time to sort through.

HORSLEY: But industry critics say that’s not the full story. Property and business interruption claims from September 11th cost insurance carriers $16 billion. But property and casualty insurers also saw investment earnings drop last year by $13 billion. Doug Heller of the watchdog Foundation for Taxpayer & Consumer Rights complains insurance companies now expect customers to make up for their investment decisions.

Mr. DOUG HELLER (Foundation of Taxpayer & Consumer Rights): In the insurance industry game, it’s heads we win; tails the consumer loses. When the stock market is doing well, the insurance industry reaps the benefits. When the stock market falls apart, the consumer pays the price.

HORSLEY: P.J. Crowley insists consumers also got the benefit during the boom years, when investment income allowed insurance companies to keep premiums low as they aggressively competed for business. Now that the investment cushion is shrinking, Crowley says, companies are looking to premiums to cover more of their costs.

Mr. CROWLEY: If insurers are expected to use investment income to keep rates stable when the market is good, people should not be surprised that the current Wall Street forces that are affecting all of us affect the insurers as well.

HORSLEY: Carriers have also grown so conservative some businesses can’t buy insurance at any price. Insurers refer to this as a hardening of the market. San Diego broker Larry Shay expects the insurance market will soften again but not right away.

Mr. SHAY: I’ve been in this business for 40 years, so I’ve seen these cycles before and I suspect we’re going to start seeing some leveling off and some, you know, better deals coming out of it. But we’re going to have to go through this pain for another 12 to 18 months.

HORSLEY: That’s assuming no more unexpected catastrophes. In the meantime, Shay has felt the effects of the hardening market on his own business. The insurance broker says he’s digging deeper to pay for premiums just like everyone else. Scott Horsley, NPR News, San Diego.

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