(Host) Vermont businesses say it’s harder – and much more expensive – to buy liability insurance. The reasons for the rate hikes are complex. But in some cases, insurance companies have more than quadrupled the cost of coverage.
VPR’s John Dillon reports:
(Dillon) As a brand new business, the Morse Farm cross-country ski center outside Montpelier didn’t have a record of expensive insurance claims. The ski center opens this week for the first time. Owner Burr Morse says he thought it would be easy to buy insurance.
(Morse) “I started with my agent and he just seemed to draw a zero. And that kind of triggered an alarm that they’re might be problems. And we went through several agencies, some of them didn’t ever return the call. Some actually contacted the insurance companies, the big outfits and were told, no, no we’re not going to do that.”
(Dillon) Morse finally found coverage through a national association of cross-country ski areas. But he says even the trade association had a hard time buying insurance, because it’s previous carrier decided to get out of the business. The association ended up paying about 20% more for coverage.
The insurance rate increase hit much harder on another part of the winter recreation industry. The Vermont Association of Snow Travelers – known as VAST – runs the network of snowmobile trails that crisscross Vermont. VAST Director Brian Watson says its liability insurance costs jumped from $27,000 a year, to $140,000. And that wasn’t the worst of it:
(Watson) “The big part of the issue is that our deductible was $500 in the past. And we now have a $25,000 deductible per occurrence, which is a 5,000% increase.”
(Dillon) VAST needs the insurance to protect its member clubs and the private landowners that allow the snowmobilers to use their property. Watson says VAST has been sued before, and its insurance company paid out about $80,000 in claims over five years. Still, he was astounded by the increase.
But he says VAST almost didn’t get any coverage at all. The group was rejected by 33 companies around the world before it found one to write a policy.
(Watson) “We were within seven hours of the expiration of our policy before we got a binder on our new coverage.”
(Dillon) The state Banking and Insurance Department says the last time the country went through this kind of sticker shock was in the late 1980s. Charles Piasecki is the department’s chief of market conduct. He says the insurance industry in general was hurt by losses from the September 11 terrorist attacks. He also believes the stock market decline has caused insurance rates to rise. That’s because companies kept rates low by investing their premiums in the market. This worked well when the market went up.
(Piasecki) “And now that the stock market has gone down and has lost money in the last couple of years, they haven’t made any where nears the money they made prior to that.”
(Dillon) Almost every company in Vermont needs liability coverage. According to Piasecki, the rate hikes have averaged around 15-20%, although some companies will pay 50-60% percent more.
(Piasecki) “Generally, this is hitting everybody out there. You know, it’s not a great situation because profit margins are lower with the economy not doing well. And we will get calls consistently from consumers. I got a couple this morning where I was trying to help them because their rates went up in once case 30%.”
(Dillon) Insurance companies file rates for the state to review. But they have broad latitude to charge different rates based on a company’s claims experience.
For Vermont Public Radio, I’m John Dillon in Montpelier.