From The Iowa County magazine DECember 2022 issue

Let’s Talk Pricing

If you happened to see the ICAP article that was published in the June issue of The Iowa County, you already know the ICAP team has been talking about pricing the last couple of years.

We noted inflation hit a 40-year high in March of this year, which has caused many of us to pay more attention to the cost of products, services and daily expenditures.  This is true personally, of course, as well as in business.

In our previous article, we touched on the fact municipal officials are likely already aware of increases in the cost of doing business and the costs related to securing coverage. Now, we’d like to take the opportunity to expand on why coverage costs are increasing.  In essence, we’d like to provide officials with a look at what goes into pricing. 

Insurers don’t want to talk about this, nor about what goes into it.  At ICAP, though, we believe conversations surrounding pricing are important to have because they help local officials plan and budget accordingly.  That being said, let’s dig in.

First and foremost, we should explain what a rating is. As defined by the Insurance and Risk Management Institute (IRMI), a rating determines the amount of premium to be paid to insure or reinsure a risk.  Most ratings are loss sensitive, which means they can be adjusted after the end of a policy period to reflect an insured’s loss experience.  Note: ratings that are loss-adjusted are implemented at the start of the next policy period – in ICAP’s case, the Anniversary Date.

Think of your personal auto policy.  If you receive a speeding ticket, your premium (contribution or payment amount) for your renewal policy is likely to increase.  This is because, based on the fact you received a ticket, the insurer views you as a more costly risk to insure, and thus increases your rating – and premium - accordingly.

Generally speaking, homeowners' insurance policies operate much the same.  So, too, do most commercial liability and property insurance policies, including those provided by ICAP.

Now, it's important to acknowledge there are many other factors at play when it comes to pricing beyond direct loss experience. This brings us back to our discussions about inflation and the market.  The fact is, given current, global circumstances, it’s a tough time for the insurance industry.

Significant increases in building costs due to supply chain issues, rising loss ratios, increasing cyber events, costly weather events, increasing labor costs and shortages, explosive jury verdicts and exorbitant settlement amounts, among other national trends, are all wreaking havoc on the bottom lines for insurers.  Unfortunately, it doesn’t seem there will be relief from them anytime soon. 

In fact, if we look at property coverage alone, we can easily understand how both frequency and severity of certain claims nationally have gone up.

Looking at the ten billion-dollar weather events that have impacted the US in 2022, five of them were centered in the Midwest.  Of those, four impacted Iowa directly, including yet another derecho (the fourth one to impact the state in less than two years).

Given the current national data showing inflationary amounts on buildings are up by 17% and vehicle prices are surging (the cost of some heavy machinery is up 19% over 2021!), it is easy to understand how the costs of related claims have skyrocketed.

And, of course, that all relates to property alone.  We haven’t even touched on some of the national casualty claim trends yet, which include outlandish settlement amounts on several liability lines, such as law enforcement, public officials and employment practices liability, to name a few.

In discussions with ICAP Underwriters, they highlighted the fact that entity-specific exposures are incredibly important to consider when it comes to rating.  They look at a given entity’s loss experience, of course, as well as at the member-specific exposures that require coverage.

Have a jail or holding facility?  There’s a cost to cover the exposure.  Host an event with live animals and/or bounce houses? That comes at a cost, too.

In addition to exposures, adding specific types of premises and/or increasing the number of employees will impact the rating and related cost of coverage for your entity.

Other factors that can impact your rating and therefore pricing – some for the positive – include access to facilities, utilization of training and risk control resources, policy implementation, and more.

ICAP Risk Control can help you review and evaluate the exposures that exist for your entity.   In addition, our underwriting team can work with your agent to evaluate exposures, explore deductible options and review certain cost-saving measures that may positively impact the cost of coverage for your entity.

If you have questions or are curious to learn more, please contact your local agent or Kasi Koehler (kasi@icapiowa.com) for assistance.