2009 Market Outlook
Although final numbers for the property-casualty industry for 2008 are not available yet, all indications are pointing to red ink. The numbers through 3Q08 indicated a loss for the industry. According to the Insurance Services Office, Inc., the industry sustained a $19.9 Billion net underwriting loss for the first nine months of 2008. This represented a $32.8 Billion swing from 2007's $18.4 Billion underwriting gain for the same period. The industry's combined ratio, a measure of total expenses and incurred losses relative to earned premium, deteriorated 11.8 points to 105.6, compared to 93.8 for the first nine months of 2007. Obviously, the overall economic downturn which accelerated in 4Q08 and the continued crisis of the financial markets brought a volatile end to 2008.

Many are asking if the mortgage crisis and losses from financial guaranty products were significant factors in the industry's poor results, and wondering if this will cause a change in the property-casualty marketplace. This will no doubt impact certain segments of the industry, but many other factors are more likely to have a significant effect.

Here are six factors that will play a part in determining pricing, capacity and underwriting appetite in the 2009 property-casualty marketplace:

• Catastrophes - Through nine months of 2008 over $21 Billion in catastrophe related property losses in the U.S. compared to a combined total of $15.5 Billion for 2006 and 2007.
  
• Reinsurance - Initial reports are that reinsurers are negotiating price increases and increasing primary carrier retentions.
  
• Investments - Not even large insurance companies are immune to the financial market's current poor performance. Carriers that underwrite to higher losses and count on investment returns to bolster earnings will likely have issues.
  
• Economic Activity - The worldwide recession is holding down demand for insurance through lower inventory values, sales, payrolls, numbers of vehicles, etc.
  Price Competition - Seven years of intense price competition and declining rates have resulted in premiums that do not support the inflation of claims.
  
• Capital and Credit - In what is typically not a pervasive problem for the industry, the tightening of credit and lack of capital is creating problems even for industry giants.

Another interesting factor is the increased scrutiny that the industry's rating agencies such as A.M. Best are placing on carriers. These rating agencies do not want to "get it wrong" in the wake of the sub prime mortgage crisis. Their equivalents, which monitor lending institutions and establish commercial credit ratings, have a black eye from the sub prime mortgage crisis. Insurer rating agencies are trying to avoid this. Expect these rating agencies to be extremely vigilant in 2009.

According to most sources average rate decreases in 2008 for business insurance were somewhere between -7% to -15%. Given the events of 2008 and the expected influence of the factors mentioned above it's unlikely that double-digit rate decreases will continue in 2009. However, it is too early to speculate whether significant rate hardening will occur, which could be alarming for risk management advisors in the wake of a continued recession.

Risk management is progressively becoming a common term used in the health insurance industry. On average, 7% of the population covered by a medical plan will incur no health insurance claims during a given year, while 22% will have claims that are at least 10 times the cost of the average person.

Proactive wellness and health management programs are continually evolving to assist employer groups to keep the healthy population healthy, and manage the risk of the other 93%, especially those in the 22% category. Given the healthcare and prescription drug cost trend and the overall increasing costs of offering medical benefits to employees, employers are transitioning from the question "How much will it cost to implement and manage a wellness program?" to "How much will it cost for not implementing a wellness program?". Although there is currently no consistent barometer of return on investment for wellness programs, it is a fact that healthier employees will incur less healthcare expenses and provide employers with a more productive workforce, reducing risk at the workplace and on their medical plan.

1. This plan is essentially a means for Amish business owners to go self-insured without the burden of the regulatory compliance required to be approved for self-insurance in Indiana, such as applications and approval, proof of financial responsibility, bonding or other collateral, etc. It provides for Amish business owners to "take care of their own", as is their tradition, without being out of compliance with State regulations and without violating religious principles which oppose public insurance.
   
2. This plan is ONLY available to Amish business owners. No other religious affiliation is eligible, regardless of how similar their faiths may be. Eligible employers must sign up by completing an enrollment form with SBA.
   
3. This plan is ONLY applicable to Amish employees of Amish employers (or self-employed members of the Amish Faith).
4. Non-Amish employees must still be covered by their Amish employers with a standard WC policy. In order to exclude their Amish employees on the policy they have to provide for their Non-Amish employees, endorsement WC 00 03 08 Partners, Officers and Others Exclusion Endorsement should be added with the Schedule of Others stated as "Amish employees covered under the Amish Small Business Aid".
   Non-Amish employers are NOT eligible to participate in this agreement and must continue to provide standard WC coverage to all employees, including their Amish employees. A non-Amish employer may not eliminate reporting of payroll on their WC policy for their Amish employees.
   
5. Amish employers are still required to meet the statutory benefit standards of Indiana Work Comp law for their Amish employees (with some details regarding Occupational Disease and PPI ratings still being worked out with the State).
   
6. SBA requires each Amish member employer to maintain a list of their Amish workers to verify eligibility. This can be cross-referenced to listings of members of the Amish Faith if necessary, but it is incumbent upon the participants to maintain accurate information and prevent abuse in order to maintain approval of this special program by the State.