From The Iowa County magazine August 2022 issue

Why did my county’s premium increase?

A key question insurance agents serving counties and Country Risk Management Services agents are being asked this year is, “Why did my county’s premiums increase?” After all, the budget has been certified, department heads have set their budgets, and now the renewals may have a 15% to 20% increase. As county officials, you don’t want to hear this news. As agents, we don’t want to deliver that news, either.

The answer to this question is complex. Each county is unique, but there are some similarities when analyzing premium changes. An important distinction is the difference between exposure increases and rate increases.

Exposure increases include the following major categories:

1.   Operating Expenditures. This is a review of the county’s adjusted operating expenses found on Line 26 (before transfers out) of the budget posted on the Department of Management website of the three-year comparison page. Adjustments are made subtracting certain deductions (Capital Improvements, Law Enforcement expenditures, Welfare Benefits, Independent Contractor expenses, etc.); the final number is compared to the number from the prior year. The operating expenditures mainly impact the general liability line.

2.   Property Limits. The increase may come from additional buildings or equipment added throughout the year and the inflation factor. An inflation factor is applied to buildings insured at replacement cost. Before the derecho* and the Covid-19 pandemic of 2020, the factor was around 2% to 4%. The entire insurance industry, including ICAP, realized the catastrophic nature and the domino effect these two disasters had on the property limits. Subsequent storms, supply chain shortages, and labor shortages all had negative impacts on the replacement cost valuations for buildings. In order to respond to the undervalued limits, numerous carriers, including ICAP, increased the inflation factor to 6% or 8%. A benefit feature for all members ICAP is no midterm premium charge. Meaning, no immediate premium charge is levied for property or mobile equipment less than $100,000 in value.
*The loss figure we’ve seen for the entire derecho event was $11 billion!   Carriers are attempting to keep pace with replacement costs for now and the future due to these events and numerous shortages.

3.   Fleet Liability. Another feature of ICAP membership: coverage is automatic for all licensed vehicles with NO PREMIUM CHARGED midterm regardless of cost. At the next renewal, the vehicle is rated for the upcoming year.

4.   Fleet Property Damage Limits. No charge is made midterm for additions.

5.   Employee Count. This exposure is simply a comparison of employees rated for from one year to the next.

6.   Ratable Payroll. The ratable payroll impacts not only the rating for ICAP but also IMWCA for worker’s compensation. ICAP rates for very specific classes of work; IMWCA rates for all workers. Bottom line, if the county payroll increases it will have an impact on your premium. In worker’s compensation each class code has its own rate. The distribution of payroll among class codes, the experience modification factor (mod), and the specific earned discounts and credits could result in a premium decrease even with an increase of payroll. The worker’s compensation premium is a more in-depth analysis specific to each county.

The second important reason the county premium may have increased is a rate increase. Rate increases stem from the following:

1.   Reinsurance Premium Increase. ICAP purchases insurance from reinsurers in the same fashion as traditional insurance companies. Major companies in the reinsurance market include Munich, SWISS, Hannover, Berkshire Hathaway, Lloyd’s of London, etc. Reinsurance is “negotiated” between the two parties after an analysis of claims data, trends, and other factors. In the last several years, the reinsurance market has been in a turmoil. In January, ICAP notified members and agents to anticipate a 12% to 15% rate increase based on the reinsurance projections at that time. When the reinsurance was finalized late spring, the actual cost was higher than originally anticipated.

2.   Cyber Premium. Cyber liability has also had tremendous upheaval since the pandemic started. Shutdowns, job closures, quarantines, and work from home scenarios created an environment primed for computer hackers to hone their skills. And they did with a vengeance! Claims skyrocketed to unprecedented levels. The premiums tripled and quadrupled for some businesses, if they could find a carrier to insure them at all. This is a line of coverage ICAP purchases and passes thru to the end user, our counties.

3.   Holding Facilities (Jails). County’s that operated a jail prior to 2022 were not charged for this exposure. During reinsurance negotiations, a review of claims uncovered that this was a specific exposure with great potential for claims unique to their operation. Each account operating a jail is incurring a flat charge of $10,000.

The Council of Insurance Agents and Brokers released their 2022 U.S. Casualty Market Outlook recently. Their analysis found the cost for commercial auto, general liability, and umbrella coverages increased between 26% to 51.9% over the last 12 months.

Nuclear Verdicts

A new term has emerged in the insurance industry – Nuclear Verdicts. Nuclear Verdicts refer to an exceptionally high jury award that surpasses what should be a reasonable or rational amount.

Nuclear verdicts have exploded in the Midwest (including Iowa) in the last few months. Two settlements awarded within the last few months are examples of Nuclear Verdicts. The first was in Johnson County which awarded $97.4 million in March. The second case was in Minneapolis where the jury awarded $111 million in a personal injury case.

Over the last 12 months, ICAP has incurred four claims exceeding $2 million and currently has one claim reserved for $2 million. These types of awards are not unique to ICAP. In general, claims have been more frequent and severe in the last few years.

Premiums increase and decrease based on multiple factors. ICAP, IMWCA and your local agent perform due diligence in ensuring you have the best coverage at the most affordable cost. If you have any questions, please contact your local agent or any of the CRMS representatives. Learn more about CRMS at crmsia.com. We’re here to serve you!