Employers are beefing up benefits, such as expanded life insurance and improved disability and supplemental benefits for critical illnesses, disabilities and even identify theft.
The reason is simple, according to Kristen Allison, chief executive of Irvine-based Burnham Benefits Insurance Services.
“In a tight economy, the employers are competing for talent,” she said. “They’re wanting to provide best-of-class benefits. If the economy changes, they’ll be ratcheting it down a bit.”
Orange County insurance brokers said premiums, for the most part, are rising because companies are hiring more, leasing more space and adding services.
“All that will drive up premiums,” said Tom Corbett, chief executive and chairman of Alliant Insurance Services Inc., the largest insurance broker based in Orange County. “We see our clients continuing to build.”
More Competition
The brokers said they’ve noticed more competition among insurance companies in Orange County, particularly in the industries of healthcare, manufacturing, real estate, construction and hospitality.
“It’s a very competitive rate environment,” said Kevin Bogart, chief executive of Wood Gutmann & Bogart Insurance Brokers in Tustin.
Allison is seeing more local brokers willing to sell their practices as they get older and want to liquidate. She said there are a lot of private-equity investors who want to acquire local practices.
“I’m always being approached on being acquired,” Allison said.
The good news for customers is that rates probably won’t go up as much as last year, the brokers said.
“The rate increases are a little less than last year,” Allison said. “There is more competition. There’s a desire for carriers to hold onto their customers.”
Healthcare Jump
The bad news is that next year’s biggest premium increases will be in healthcare insurance, which can make up as much as 80% of the benefits offered by employers.
Corbett projects a 4% to 6% rise, while Allison forecasts a percentage increase in the “mid-single digits to low teens.”
A key reason for the increases is “shock loss” claims for items that can cost several hundred-thousand dollars, such as treatments for cancer, Hepatitis C and car accidents.
“Those shock losses are becoming larger, and you cannot prevent those,” Allison said. “There’s a reality behind the cost increases.”
The increase would have been 2.5% to 3% higher except that the Trump administration removed the insurance fee used to subsidize Obamacare, Allison said.
Pharmacy premiums are rising from the low teen percentages to 20%, and dental premiums are up 3% to 4% and vision premiums are increasing 2% to 3%, Allison said.
In Southern California, health maintenance organizations, or HMOs, are still the most cost-effective plans, said Allison, who added that her firm has experienced an increase in consumer-driven health plans, including health savings accounts.
Distracted Drivers
Bogart is seeing an increase in commercial auto insurance with the rise of drivers for car services such as Uber Technologies Inc. and local deliverers.
Cars are becoming much more expensive to repair because of increasing technology, such as sensors, Bogart said. The insurance industry has been lagging in charging adequate rates for vehicle accidents, he added.
“Commercial auto is the most stressed of all current lines of business. That has to do with distracted drivers, more folks on the road because of the economy.”
He also expects the losses caused by wildfires in Northern California “to take a toll” by driving up some lines of insurance.
And he’s noticed an increasing number of claims for homes damaged by broken water pipes in south Orange County because the soil might corrode pipes faster than normal.
“We’re hearing it from a lot of our homeowner insurance carriers,” Bogart said. “The water damage takes place over several hours before being caught. I’m hearing it costs up to half a million dollars to fix because the leak is on the second floor and the drywalls and floors are being torn out.”
He said new homes are being built with devices to shut off water in case of a broken pipe.
Corbett predicted liability insurance premiums may range from flat to rising as much as 10%. He also said recent natural disasters could affect rates.
“The hurricane that hit the Carolinas may have a dramatic impact on the insurance market for the next three years.”
Falling Premiums
Among declining premiums are life insurance due to increased life expectancy, and commercial business insurance premiums because of rising competition, Bogart said. An emerging trend is more competition among workers’ compensation insurance due to reforms in recent years taking shape, Corbett said.
“Some of our insurance carriers are pounding the pavement for it, which is quite a change from years ago,” he said.
The brokers said customers have a sense of dread while waiting for annual premium announcements. Still, they said people are looking for consistency and are reluctant to change.
“Businesses don’t need change in their insurance world,” Bogart said. “The last thing they want to see is volatility when they’ve got a lot of things on their plates.”
