Blue Skies Ahead

DESPITE THE INSURANCE industry's unpredictable climate during the past two years, it appears that a brighter forecast is on the horizon. And today, protection provided by financially stable companies has never been more valuable.

The 2003 U.S. Property Report issued by Aon, a Chicago-based insurance brokerage firm, found that property insurance rates have begun to decrease as insurers have met their target growth levels. This has helped to drive down rates. Also, the report found that insurance premiums have lowered for some at-risk properties, for example, those exposed to natural disasters. Aon's report was based on an informal survey of both buyers and property insurance sellers, and its intent was to provide a view of the current property insurance market.

Overall, insurers remain selective on what risks they choose to insure. However, most major insurers are beginning to see some stabilization in 2003. With net-written premiums, the property and casualty insurance industry continues to report strong growth. The industry's strength is with return investments, which has helped its surplus grow. This surplus is the money earmarked to pay future claims. However, inadequate return on investments continues to dent the strongest insurance company's reserves.

According to the Insurance Information Institute (III), New York, insurance has become more affordable than it was a decade ago. Commercial net-written premiums as a percentage of gross domestic product (GDP) fell to 1.5 percent in 2000 from 2.3 percent in 1988. This is a 35 percent decline, before rising to an estimated 1.8 percent of GDP in 2002, the III reports.

Additionally, the cost of business risks relative to revenues fell by 42 percent between 1992 and 2000, states the Risk and Insurance Management Society (RIMS), New York. And with double-digit increases during the past two years, businesses still are paying an estimated 13 percent less to manage risk than they were a decade ago, according to the III. Also, the III reports that in 2001, property and casualty insurers experienced an 8.7 percent earned-premium investment gain, which consisted primarily of investment income, realized capital gains and/or losses, and stock dividends. While investment gains were down from the 10-year average gain of 10.1 percent, the III found that most people gladly would trade the industry's portfolio performance for the double-digit negative returns experienced by most investors during the past few years.

For the waste industry, all of these findings mean that businesses must weather the storms of the insurance market, and remain steadfast in managing their risks. Insured businesses should remain vigilant about proactive risk management strategies. Safety programs, proactive environmental management practices, enhanced security, fire prevention and cleaner premises all can limit premium increases or secure the best price for coverage in the future.

(This column is intended for general information purposes only. Contents should not be construed or used as legal advice or opinion.)