Rancho Mesa's Alyssa Burley and President Dave Garcia, talk about the areas of insurable risk organizations should have the biggest concerns about as they plan for 2022.

Show Notes: Subscribe to Rancho Mesa's Newsletter
”The Field Guide to Navigating Your Insurance in 2022” - article link

Director/Producer/Host: Alyssa Burley

Guest: Dave Garcia

Editor: Lauren Stumpf

Music: "Home" by JHS Pedals, “News Room News” by Spence

© Copyright 2021. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

Alyssa Burley: Hi, this is Alyssa Burley with Rancho Mesa Media Communications and Client Services Department. Thank you for listening to today's top Rancho Mesa News, brought to you by our safety and risk management network, StudioOne™.

Welcome back, everyone. My guest today is Dave Garcia, president of Rancho Mesa. We're going to talk about the areas of insurable risk organizations should have the biggest concerns about as they plan for 2022. Dave, welcome to the show.

Dave Garcia: Thanks, Alyssa. Excited to be back in StudioOne™.

AB: It's now December and I think that we're finally done with all of our planning for 2022. Looking back what was the overall state of the insurance marketplace in 2021?

DG: So in 2021 as most of you are aware, we experienced a hardening insurance market. So most lines of insurance you would have seen increases in premium and that was due in large part to all the different catastrophic events we experienced from wildfires to flooding to hurricanes, and then of course the emergence of COVID-19. So these large national and world wide crises like that they really cause underwriting losses in the past year in the billions of dollars to both frontline insurers and then of course their reinsurers. So, the COVID-19 piece wasn't anything that anybody saw coming and it really had some major impact. So, just to name a few, it really affected the loss and income of revenues of so many businesses out there. It created labor shortages for businesses. There was, of course, health concerns that went with it, and then, of course, the relocation of the labor force from in the office to at home, they really presented tons of challenges to the insurance marketplace.

AB: Yeah, and speaking of challenges, what challenges do you see for the insurance marketplace in 2022?

DG: So on most lines of insurance as we move into 22, I don't really see any softening of the market there. So if I'm a business owner in California, across the United States, I'm going to budget some increases in my property and my auto, my general liability, my excess in umbrella insurance, cyber and employment practices, insurance. I think it's just prudent. You know, you should be meeting with your advisors and talking with them about what they see But we're certainly telling our clients, you know, I would anticipate increases in those lines of insurance.

AB: Yeah. And what are some of the ways a business owner can prepare and better mitigate these increases?

DG: Yeah, you know, Alyssa, that's a great question. And it's, it's nice, I think, for business owner to actually feel like they've got some control in that. So let me give you a couple of tips that we suggest to our clients and maybe you can implement them yourselves. I think you need to start your renewal process at a minimum, 120 days away from your expiration date. We have an article that's published a pre renewal process article that goes into much greater detail. And if you'd like a copy of that, there'll be a link in the printed article of our podcast. The other thing I think you should do is really be willing to meet and discuss your particular situation, your needs and your goals. You know, so often we find business owners you know, they see insurance as the necessary evil and they want to spend as little time on it as possible, and really it's contrary to getting the best results. So give your advisor the time that they need to sit and talk and really discuss what your situation is and what your needs are. And then I think it's really important to choose a broker that specializes in your industry that gives them the ability to negotiate in the marketplace for you from a position of expertize and strength, rather than just a generalist who does one of you in his or her book of business. And then another recommendation would be to evaluate the services that you receive from your broker's agency and assure that they align with your specific risk management needs. And are they being proactive for you? They just being reactive for you. It's time to, to take control of this process. I believe and be proactive and prepare for what's coming.

AB: Yeah. And we'll include a link to the pre renewal article in the episode notes as well so our listeners can get that. And Dave, where do you see the workers' compensation marketplace going in 2022 and maybe beyond?

DG: Yeah. So that's, that's another really good question and I'm fortunate that I sit on three different national workers' compensation councils, so I get an opportunity to sit with the leaders of these companies and really talk to them about where they see it going because it's obviously all that they do. So I do believe in 2022, the worker's compensation market will remain soft. And what I mean by that is by and large, if you don't have a big swing up or down in your experience modification or you've had a lot of claims in the current year, you should see some small decreases in your premium overall. Not everybody will see a decrease, some will see increases. But overall, the worker's compensation marketplace should remain soft in 22. The CRB here in California is the Workers' Compensation Insurance Rating Bureau. They came out September and they recommended a small decrease in the industry a little over 3%, and the filings that we monitor here statewide for all the carriers, we see that reflected in their filings. We're seeing overall decrease in their base rates of about three to 4%. That doesn't mean they're going to pass that all on. There's a lot of subjectivity to the underwriting process, but overall the rates will decrease in 2022.

AB: Looking even further into the future. What do you expect to see in the worker's compensation market in 2023?

DG: Yeah. So you know, what. There's several leading indicators and that's one of the things I try to stay in the loop on with all of the people that I'm able to talk to is to see from their chair. What are they seeing that many times, it's more than what I can see. So there are several leading indicators that present to me an early signs of a hardening market. So what is a hardening market? That would be the worker's compensation industry taken rate increases across the board. So let me share with you a few things from my perspective that I think are going to help promote that increase. I don't know. You know, my crystal ball has snow in it. I don't know. I can't give you an exact date, but I would say towards the end of 2022 and the early part of 2023, we could see some hardening of that market and here's why. All of you out there, that are business owners, you've experienced the wage inflation. We've all had to pay our employees more to try to keep them or to try to get people to come and work for us. So we've had to pay more. So what this does in the worker's compensation marketplace is should you have an injury to one of your workers, their temporary disability payment is now going to be higher because their wages are higher. Their payments are going to be higher if they go out on a temporary disability basis. But the other side of that wage inflation that took me a while to really get my head around is to understand that wage inflation also affected the actual insurance carriers. The carriers have had to increase wages to their employees for the same reasons that all of us have had to do it. So what impact does that have? There's something that carriers look at. It's called their combined ratio. So what that really looks at is for premium dollars collected, what are my costs going out? And that's a combination of claim costs and then the carriers overhead and the carriers that we like to work with, combined ratios are generally in the high eighties and low 90 percentile. So they're making a profit, they're making an underwriting profit on their premium, which then in turn allows them to provide the types of services that we think our clients need. But if you look at, say, 6% payroll inflation, what that does to a carrier is it increases their combined ratio by 6%. So it's going to push some combined ratios above 100. And if you're a business and you're for every dollar you're collecting, you're paying out a dollar two or a dollar five or a dollar ten. You will raise your prices. So I do believe that's going to occur, and that's something that's a little bit hidden to most people. So, so be aware of that. Talk to your advisor about that, see if they have an opinion on that as well. And then as we move into the September now and beyond COVID claims will probably now be included in your experience modification. So previously, if you had a COVID claim, the carrier paid the claim, it affected your loss ratio, affected their profitability, but it did not go into your actual experience modification after September 1st of this coming year in 22, there's a proposal out there that I do believe will be initiated to begin, including those COVID claims. So, hopefully by then it won't be as big of an issue or we'll maybe have this thing even more under control. But it's something as a business owner, you want to make sure that you're taking the right steps to mitigate that exposure for your company.

AB: Yeah, and we'll definitely keep an eye on that. When should employers start preparing for a hard market?

DG: Honestly, I think you should start yesterday. Today's too late. You really need to start implementing as many safety things as you possibly can right now to continue to improve your performance. We're going to explore all of those techniques and things that you could be doing in a series of articles that I'll be putting out beginning in January. So, I think some point you'll be able to click on a link and pre subscribe to that. I think they'll be really useful insights for you to use as you move forward. But for now, I would utilize a compensation gap analysis and opportunity assessment through our risk management center. Our clients are familiar with what that is and they can go through and kind of look at some of the variables, benchmark your performance to your industry standards. I think those are areas where you can look for improvement. We have a proprietary product here. It's our Rancho Mesa Key Performance Indicator it's on our website. If you'd like us to put that together for you again, you can click there. We're happy to do that. There's no charge for that, but it gives you some really useful tools to compare yourself to the industry and what we all want to be striving for is as good as you are today, if the market hardens, you need to be that much better. So if the industry's going to take a 5% increase in rate, you need to control your losses by at least 5% better and then really choose your worker's compensation carrier wisely. I think I've references in a previous podcast when I was first in the industry, I was talking to a leader in the worker's compensation industry and he asked me "How long is a work comp policy?" and I said, "One year." And he said, "Well, actually it's four years because the carrier that you choose will be working your claims all the way through your experience modification." So I don't think there's a more important thing that you could be looking at right now is choosing your right carrier partner beginning in 2022 because any claims you have in 2022 are now going to be affecting your 24, 25 and 26 experience modification and a poorly managed claim is going to go with you a long ways. And if the market hardens it's almost like it's a double whammy. So we have an article on that and how to choose a worker's compensation carrier partner, again, will provide the link that you can just request that. And then lastly and certainly other ways to do this, but ask yourself, have you ever considered performance based programs and what do I mean by that? It's kind of like having skin in the game or putting your money where your mouth is. You know, if you feel like you can control your costs, that you've got things in place that can mitigate the claims that you're going to have, you know, maybe it's time to bet on yourself. And what do I mean by performance based programs? They take a lot of different shapes that could be deductible workers' compensation programs starting as low as $1,000, deductibles up to $250 to $300,000 deductibles. There's retrospective programs out there. There's captives, there's self-insurance. So, you really need to understand if that's something you should be considering today. But in the worst event, you should be educating yourself on those programs, because if this market hardens like I think it will, those programs are going to be there for the better risks that are out there. We do have a webinar that you can click on a link and listen to us go in much more detail there. So with worker's compensation premiums representing such a significant line item on many profit loss statements, staying up to date on this rapidly changing environment should honestly be a priority for all businesses preparing for the unexpected rate increases. And more important, now with inflationary costs already, you know, it's choking our profitability as all our businesses So, our series of articles starting in January, I think this would be a big help for you in preparing for the inevitable and better understand the steps you can take now to weather this building storm.

AB: Yeah, and we'll make sure that we do put links to those articles and a link to the KPI in the episode notes so everybody can get that, and Dave, from what I'm hearing, incorporating a clear strategy as it relates to your insurance portfolio is perhaps more critical than ever leading into 2022 with pricing increases across all lines of coverage becoming more and more common, managing this line item on a company's budget should be a proactive process that they do with their broker. So listeners should start a dialog now and develop the right plan to design and coordinate the most comprehensive and competitive program that they can. So if listeners are interested in anything that we talked about today, what's the best way to get in touch with Rancho Mesa?

DG: So there's a number of different ways you can go to our website and just click on a link that says "Contact Us". We're happy to respond to you there. You can send us a message. You can email me at DGarcia@ranchomesa.com. So if you come to our website, you'll find plenty of ways that we can communicate back to you. But I think also what you just said, I am a 100% agreement. It's time to be proactive. Don't let this marketplace happen to you. You take the steps necessary to protect your business. I'm there with you. You know, we started Rancho Mesa 22 years ago, very modestly. We've worked very hard to go where we're at. I know you guys share that sentiment with me. So protect your business. Choose that specialists in that business that can really help you improve your bottom line. So it's nothing to be afraid of. We can manage through this crisis. We just need to be proactive and take the necessary steps. So, you know, I appreciate the time today. As always, StudioOne™ is awesome. You know, we're nearing 10,000 plays so that's exciting. So thanks for having me on the show today Alyssa, appreciate it.

AB: Absolutely, and as always, thank you for joining me in StudioOne™.

This is Alyssa Burley with Rancho Mesa. Thanks for tuning into our latest episode produced by StudioOne™. For more information, visit us at RanchoMesa.com and subscribe to our weekly newsletter.