Insurers Drive Up Prices for U.S. Businesses

By Nicole Friedman and Leslie Scism

Large catastrophe losses and low interest rates force insurers’ hand after years of no increases; Hurricane Maria did heavy damage when it swept through Puerto Rico in September 2017.

U.S. companies are paying more for insurance, a reversal after years of flat or declining rates for property and liability policies.

Insurers have raised prices aggressively in the past year on companies of all sizes across the country. And they have warned price hikes are likely to continue.

The turnabout underscores a challenging landscape for U.S. insurers following several years of large catastrophe losses and continued low interest rates, which have weighed on their investment returns.…

In recent months, insurers have cited “social inflation” as a cause of increased liability-insurance claims. Industry executives say there is a greater tendency to sue insurers and for juries to hand out higher awards.

While insurers are used to lawsuits over big insurance policies, “what we’re seeing now is the attorney participation spreading into…small accounts," said Travelers Cos . Chief Executive Alan Schnitzer on a January earnings call.

Joanne Doroshow, executive director of the Center for Justice & Democracy at New York Law School, disputed that insurers need to raise prices to address lawsuits or large jury payouts. “There exists no litigation data whatsoever to support the notion that claims are spiking,” she said.

Dual turnaround efforts by AIG and Lloyd’s have also been a catalyst for price increases.

AIG has spent several years improving profit margins that suffered in the aftermath of its 2008 federal bailout, including reducing its commercial premium volume.

In 2016, AIG’s net premiums written declined by more than 17% to about $17 billion as the company began to overhaul its book of business.

Since then, the new leadership’s moves include shrinking policy sizes by tens of billions of dollars in the aggregate, AIG President Peter Zaffino told investors in December. “The market has to absorb that,” he said.

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