One Million Dollars – Nothing Like it Was
Posted on Tue, Mar 15, 2011
Last year. I passed a milestone at Gaudette Insurance, twenty years of service. Early in my career, most businesses selected liability insurance limits of $1,000,000. Some also added an extra layer in the form of an umbrella liability policy often with a $1,000,000 limit.
If your $1,000,000 policy limits haven’t been increased in even just a few years, you may be surprised at how far you have fallen behind. The costs your insurance provides protection for is best captured by examining the US Tort system costs which have been analyzed by the Insurance Information Institute (III). The III calculated the average annual growth in tort system for the 59 years from 1951 – 2009 at a staggering 8.7%. For many of those years, the change was well over 10%. A major driver of this change has been the very rapid growth in the cost of hospital services which is a key component of many losses.
Here’s a quiz – Which would provide more protection relative to the tort cost trend? A $250,000 limit in 1990 or a $1,000,000 limit today. I was surprised at the answer. The equivalent of $1,000,000 in costs in 2010 was only $162,000 in 1990. The $250,000 is the correct answer. Using the reverse of this same math, if I had $1,000,000 limits in 1990, how much do I need today to have kept pace with the growth in tort costs? Answer: OVER $5,000,000!