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Health, auto, homeowner, business liability

‘Fasten your seatbelt, there’s turbulence ahead’

Earlier this month, 228 striking teachers at Middletown Township High School in Freehold, N.J., were jailed for violating a back-to-work order. The teachers were protesting a move to increase their health care premiums from $250 to $600 per person, per year.

They’re not alone commiserating about escalating health care costs. Employers nationwide anticipate increases of 13% to 18% in health care and prescription costs, with the average per-employee cost rising to between $5,336 and $6,817, according to Hewitt Associates, an international management consulting firm.

Health care

Based on a survey of 16 million health-plan providers and 300 major national companies, employees can expect to pay an average of $186 to $463 more for health care coverage. Following a 15% increase in 2001, prescription drug costs are projected to rise 15% to 20% in 2002, faster than other group health care plan components.

Danny Moseley, president of Independent Insurance Agents of Mississippi, said health insurance is “trending 15% to 18% and higher.”

“In some cases, it’s not uncommon to see 30% to 40% increases on group health insurance coverage,” Moseley said.

Harold Ingram, president of PerforMax Inc., a medical staffing service in Jackson, said small business owners “face quite a conundrum dealing with health insurance.”

“As a small business owner, I saw about a 15% increase in health insurance in October,” he said. “A little over a year ago, I had to change providers because the one supplying my insurance coverage elected to no longer do business in the state, apparently because of losses. My current annual cost for insurance is in excess of $70,000. This is no small expense. It represents between 6% and 7% of my gross income.”

To reduce the impact on his bottom line, Ingram restricted the benefit structure. Deductibles were raised from $500 to $1,000 per person per calendar year, and major medical payments were reduced from 80/20 to 50/50. Instead of a $15 co-payment for an office visit covering tests and x-rays, only the visit is covered.

“The employees are not happy because it is more expensive when they go to the physician,” he said. “In times of illness, this adds stress in the office, which, by the way, I do not need. I have enough stress trying to generate enough income to pay for what health coverage I do provide. It creates problems in attracting and retaining employees. In a recent poll where I queried several employees about what would attract them to the position, the No. 1 concern was benefits.”

Health care rates are rising for several reasons, such as covering the cost of implementing new federal health care regulations.

“Technology in medicine is much more expensive and the inflation rate in the medical industry is higher than in the general economy,” Moseley said. “Some groups are getting rate increases every year simply because the age factor goes up. Add in the tort situation and you’re looking at an increase.”

For the most part, State Farm Insurance Company is bucking the trend.

Abraxas Abrams, regional public affairs specialist for State Farm, said the company would not increase premiums for workers’ compensation, health care and homeowners insurance policies, but auto insurance will rise 5% Jan. 1.

Blue Cross & Blue Shield of Mississippi, which had a 47.2% market share in the accident and health business in Mississippi last year, declined to comment on this story.

Market factors

Mississippi Insurance Commis-sioner George Dale said four factors are driving the cost of insurance: underwriting, investments, reinsurance/terrorism and the legal climate.

“When investments are good, insurance companies can ignore good underwriting principles,” Dale said. “They will lose money underwriting in exchange for cash flow because they can make it back on investments.”

During the first six weeks of 2001, the nation’s life and health insurers reported that profits plunged $6 billion, or 42%, compared to the same time period the year before. The decline was primarily the result of a $2.2-billion capital loss on the sale of invested assets and a $3.1-billion decline in overall operating profits, according to Weiss Ratings Inc., an independent insurance research firm.

“All of these declines took pace in the first and second quarters of the year, long before the Sept. 11 events, and they began well before the onset of the recession, now officially pegged to March,” said Martin D. Weiss, Ph.D., chairman of Weiss Ratings Inc.

Dale said, “Right now, investment portfolios are down, so insurance companies are re-underwriting a big portion of their business, non-renewing some and charging more for others. If investments were profitable, they wouldn’t have to do this.”

Reinsurance/terrorism is directly affected by the Sept. 11th tragedies, Dale said.

“Insurance companies have to purchase reinsurance, most of which is done from overseas companies like Lloyd’s of London,” he said. “There’s no way of knowing how much the cost of the terrorist attacks is going to be passed through the insurance companies to the reinsurers. Because of that, reinsurance costs after Sept. 11 will probably be passed on to the American insurance industry with as much as a 30% to 40% increase. It’s a trickle down effect.”

Rising estimates of losses from the World Trade Center tragedy in New York City, considered the largest insurance disaster ever, continues to take a toll on the insurance industry. So far, claims are estimated to reach $70 billion nationwide.

“The events of Sept. 11, 2001, could forever alter the cost, structure and availability of insurance policies,” said Weiss. “They will be more expensive. They will cover less. They will be harder to come by. And, there will probably be some federal government participation.”

Last month, insurance industry executives told legislators that without federal help, the industry would be forced to either stop compensating businesses for losses from the terrorist attacks or raise premiums substantially. On Nov. 29, the House passed the Terrorism Risk Protection Act (TARPA), which would guarantee terror risk insurance without prolonged government intervention in the private market. At press time, Senate leaders negotiating terrorism insurance legislation had signaled a compromise was within reach.

“If that passes and allows the federal government to underwrite the costs associated with terrorism, in the future that could reduce the rates being charged by the reinsurance industry,” Dale said.

Many critics have said the legal climate in Mississippi, ripe for lawsuits with hefty jury awards, is a critical factor in rising insurance costs.

“The tort situation could single-handedly be one of the main reasons for (insurance) increases,” said John Wells, deputy rating director for the state insurance department.


In Mississippi, personal auto coverage is increasing an average of 8% to 10%, said Moseley. One reason: auto theft.

“Auto theft has a direct bearing on the cost of insurance and there’s been a problem with it in a couple of areas in Mississippi,” said Dale. “Metro Jackson is one of them.”

State Farm Insurance Companies, which insures one of every four cars in Mississippi, will raise its overall rate level an average of 5% effective Jan. 1. Premiums for liability, medical payments and uninsured motorist coverage will increase, and premiums for collision and comprehensive coverage will drop.

“However, State Farm’s overall rates in Mississippi will be 6.5% lower than they were five years ago,” said Abrams. “Since 1997, State Farm has returned $26.5 million in dividends to its Mississippi policyhold

Homeowner’s insurance

Homeowner’s insurance premiums will rise 10% to 20%, said Moseley, adding, “that’s a conservative estimate.”

“For years, we’ve asked ins


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About Lynne W. Jeter

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