Commercial Insurance Prices Stagnate, Lacking Catalyst for New Direction; Some Lines Show Firming, But Traditional Indicators of Market Shifts Give Contradictory Messages
New York, August 3, 2005 – Premiums in the commercial insurance industry continued along the path of an 18-month long down market, according to the RIMS Benchmark Survey, the industry’s only comprehensive survey of current policy renewal prices as reported by corporate risk managers. However, mixed signals from the market suggest that it may be poised for a change.
Renewal prices stabilized, or even slightly increased, for some lines of business, but some leading indicators of market direction signaled further declines. For example, general liability, a line typically responsive to changing market conditions, showed clear signs of firming, while property, often a leading indicator of market conditions, fell a further 4.3 percent in the latest quarter.
The RIMS Benchmark Survey is produced by Advisen, Ltd., which collects and analyzes the data and provides the technology infrastructure for the survey’s online services.
“It seems like a market in search of a reason to move in one direction or another,” said Karen Beier, member, RIMS Board of Directors, Membership and Chapter Services portfolio. “Indications are that the market is near its bottom and waiting for a catalyst to nudge it in the other direction, but it is still unknown what that catalyst will be.”
Other seemingly contradictory indicators demonstrate the unsettled nature of the first soft market since 1998. For instance, while directors and officers liability insurance was among the highest-flyers in the most recent hard market, it has recently suffered some of the steepest premium declines of any major line. Prices continued to decline this quarter, but anecdotal information indicates that larger insureds are experiencing stable-to-increasing premiums.
Larger, macro-economic conditions also demonstrate the contradictory nature of the market. Overall, the property and casualty industry continues to enjoy strong financial returns, which typically portends heightened competition and falling rates. However, an analysis of other factors suggests that prices may be on the verge of strengthening.
“Rates fell sharply across most lines through the last quarters of 2004, but those decreases are only now being reflected in earned premium,” explained David Bradford, editor-in-chief at Advisen. “As the effect of reduced prices hits the financials of insurance companies, and without strong investment income and capital gains to offset underwriting losses, we can expect to see prices turn upward again.”
In addition, further loss reserve increases, earnings adjustments following the reassessment of finite reinsurance transactions, and continuing losses from natural disasters could impact earnings and erode capacity, placing further upward pressure on premium levels.
“This could be a lull before another round of price declines, or, more likely, it could be the last gasp of a shallow and relatively short-lived soft market,” Mr. Bradford continued. “Only time will tell.”
About The Benchmark Survey
Risk managers who contribute insurance schedule data to the survey can benchmark both the structure of their commercial insurance programs and the cost of insuring their risk against a highly-relevant group of similar companies. Additionally, survey respondents can use customized software to view detailed schedules of insurance programs for current and past years and to create full-color charts. Both benchmark charts and program charts download into any presentation for senior management.
The results of the RIMS Benchmark Survey are available online, published continuously throughout the year, and in a book, published once each year, Visit www.rims.org/benchmark for details.
Risk management professionals can contribute their data by e-mailing current and prior year policy schedules to [email protected] Data can also be sent by fax to Advisen at 212.655.7453. Advisen will input the data, making it available for online review and comparison within days. Participant support is available by calling 1-800-655-6590.
The Risk and Insurance Management Society, Inc. (RIMS) is a not-for-profit organization dedicated to advancing the practice of risk management, a professional discipline that protects physical, financial and human resources. Founded in 1950, RIMS represents nearly 3,800 industrial, service, nonprofit, charitable, and governmental entities. The Society serves 9,200 risk management professionals around the world. For more on RIMS visit www.rims.org
Advisen Ltd. provides insight into underwriting, marketing and purchasing commercial insurance. Advisen’s web-based workstation incorporates real-time analytics and research on over 1.5 million companies, and 70 industries. Advisen currently serves nearly 350 leading commercial insurers, insurance brokers, risk management departments of major corporations, and other related organizations. Proprietary offerings of the Advisen service include Benchmarking, Proprietary Models for Company Work-ups, Company and Industry Research, Loss Analysis, Management Portfolio Analysis and Policy Comparisons. For more, visit www.advisen.com.