The largest businesses in the United States were more likely to increase their liability insurance levels through the beginning of 2006, as medium and small companies dropped theirs, according to a report released by a major insurance brokerage firm.
According to a report released by insurance broker Marsh, on average, businesses in the United States maintained their level of liability insurance, as costs for coverage dropped by an average of 5.8 percent over a 12 month period. But large companies with revenues exceeding $10 billion increased their coverage limits by almost 15 percent.
The report looked at 7,296 businesses within Marsh's Casualty Central database, examining their excess liability insurance purchases through the first quarter of 2006.
The 165 page report entitled "Limits of Liability 2006″ reviewed companies in the United States, Canada, Europe, the United Kingdom and Latin America.
Marsh, a subsidiary of New York-based Marsh & McLennan Companies, said it found, for companies that the firm has three consecutive years worth of data on, that average limits purchased increased modestly to $84 million, compared to $82 million in 2005, and $80 million in 2004.
For the second consecutive year, the average price for $1 million of coverage among U.S. firms in the study declined, falling to $11,895 in 2006, compared to $13,222 in 2005.
However, two years of price decreases haven't made up for consecutive increases in several preceding years, the report said, noting that the 2006 cost still represents an increase of 153 percent since 2000.
The largest U.S. firms in the study (those with revenues exceeding $10 billion) purchased limits of $301 million on average, the greatest amount of coverage of all firms in the study–a 14.9 percent increase in limits across all firms this size. Firms in this category that reported multiple years of data increased their limits by 6 percent.
Mid-size firms (those with revenues of $201 million to $1 billion) reduced their limits by 7 percent to an average of $53 million for the full survey population, while firms reporting multiple years of data increased their limits by 5.1 percent.
The smallest firms in the study (those with annual revenues of $200 million or less) reduced their average limits to $27 million in 2006, from $33 million in 2004 and 2005.
"In the past year, many businesses continued to see some relief from the rising costs of excess liability insurance, but the reductions still haven't offset the year-over-year increases these firms have experienced since 2000," said George G. Pallis, a managing director of Marsh's National Casualty Practice in a statement.
Mr. Pallis added, "Even though firms continued to maintain their levels of insurance protection this year, they need to recognize that they are buying insurance today to cover losses they might have to pay five years from now or more."
It can take a lawsuit five years or longer to work its way through the court system, he pointed out, so a large claim brought today may not be settled until 2011 or later.
In light of rising medical costs, the resolution of a company's claim five years into the future might be far more costly than what a business might anticipate now, he added.
U.S. companies that have sustained large losses in the past five years purchased limits of $220 million on average, almost four times the level of protection ($56 million) that was bought by those without such losses. Globally, firms that experienced losses of $5 million or more in the past five years are far more likely to purchase significantly higher limits of coverage.
Copies of the report are available at local Marsh offices or through Donna Mohan at 212 345-5343.
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