Surety Insurance Industry Trends

Selective Insurance

The basic concept of insurance is that losses incurred by one party are paid by the other insured parties who haven't had losses. Insured parties are treated as though the risk of loss is the same for all. Insurers have found, however, that they can sufficiently assess risk to offer lower premiums to parties with lower risk. Nonsmokers, for example, are charged lower life insurance premiums than smokers. While this seems reasonable on the surface, it means that parties with a higher risk pay higher premiums, sometimes so high that they are essentially uninsurable, which is generally the case for people infected with HIV. Because of the rapid advances in medical knowledge, more people with preexisting medical conditions or genetically determined diseases may be unable to buy insurance, a prospect that has prompted public policy debate and may lead to more legislative action.

Privacy Concerns Increase

As insurers get more information about consumers' medical and financial condition, consumers have become concerned that this information may be used to their detriment or to sell them other products. Provisions in the Health Insurance Portability and Accountability Act (HIPAA) and Financial Services Modernization Act (FSMA) require insurers to take new steps to safeguard the privacy of individual information. Consumer advocates are particularly concerned that new diagnostic information will be used by insurers to deny medical coverage to persons with genetically determined risk factors.

Lower Investment Returns Prompt Higher Premiums

During much of the last decade, the strong performance of the stock market and other investments allowed insurers to keep premiums low, even though losses and expenses often exceeded premium revenue, because their large investment portfolios more than made up the difference. But with interest rates lower and stocks moving sideways, investment revenue is down, and insurers are being forced to push up premiums.

No-Fault or Full-Tort

Under no-fault laws, motorists sue only for severe injuries and for pain and suffering if the case meets a legal threshold, the Insurance Information Institute (III) says. Because high-threshold no-fault systems limit litigation, they reduce insurance costs. States with low-threshold no-fault laws, however, can be just as expensive for insurers as full-tort systems because a majority of claims go to court. In a full-tort state, the incentive to file an insurance claim for even a minor auto accident is greater, due to the possibility that the insurer will settle with the claimant.

Medical Malpractice Insurance

The rising cost and frequency of malpractice claims are leading many medical insurers to stop offering coverage. Insurers say medical malpractice reforms are necessary to stop soaring medical liability insurance rates. Medical malpractice premiums in the US jumped 400 percent in the past 30 years. Insurers are pushing for tort reform legislation that, among other things, would cap non-economic damages in medical malpractice cases.

Mixed Results for Managed Healthcare

To contain the rapidly rising costs of healthcare, insurers have enrolled policyholders in managed care plans on the premise that healthcare can be delivered more efficiently if it contains systems for review of medical necessity. While managed care had early successes in reducing wasteful medicine, US healthcare costs have recently resumed high rates of growth, while patient and doctor dissatisfaction with the intrusion of insurance companies into medical practice has grown.

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