Insurance premiums for businesses continued a five-year trend of falling rates during the fourth quarter of 2008, but recent data suggest a reversal of this trend may soon be underway.
Rates for property, general liability, and directors and officers (D&O) liability premiums all decreased at a materially slower pace than in recent quarters, according to the RIMS Benchmark Survey, a survey of policy renewal prices as reported by North American corporate risk managers.
Although many buyers stuck with their existing insurers, nearly all renewed their general and excess liability policies for less than they paid a year earlier-but not necessarily because of lower rates, underwriters and brokers say.
“Risk managers tracking RIMS Benchmark Survey results are keenly aware that we may not see continued price reductions for long,” says Daniel H. Kugler, member of RIMS board of directors and assistant treasurer, risk management at Snap-on Inc. “The most recent data show that the soft market isn’t over yet, but it may be losing steam.”
“Overcapacity has driven a long soft market and the events of this past quarter may portend a market shift for commercial insurance,” says Dave Bradford, executive vice president at Advisen. “In addition to much higher than average catastrophe losses in 2008, insurance companies are facing claims from the subprime meltdown, global credit crisis and now even from the Madoff scandal. Reserves for these claims and material losses in investment income have led to negative earnings and new capital is scarce,” Bradford said. “We expect the next few quarters of data from the RIMS Benchmark Survey to show the end of the soft market.”
out of concern about the financial stability of their incumbent insurer, experts say.
Premium reductions were more a reflection of an insured’s decreased exposures rather than rate cuts, although accounts with good loss histories did get single-digit rate decreases, they note.
After nearly four years of declining rates, the general and excess liability market is bottoming out and rates likely will rise throughout 2009, they say.
While the financial crisis-including the near-collapse of American International Group Inc., a leading general liability and excess casualty underwriter-may have hastened firmer rates, its biggest effect has been more buyers marketing their programs, brokers say. Collateral issues also have been a central theme of renewal discussions, brokers and insurers say (see story, page 12).
“We are experiencing a time in our discipline right now that we’ve never experienced before,” said Marty Gould, managing director and head of Marsh Inc.’s national excess casualty group based in New York. “We’ve never experienced a period where the financial ability of a carrier to pay has been questioned or challenged the way it’s been challenged over recent months. Most clients are asking us to conduct an aggressive marketing effort on first-layer umbrellas in particular. We’ve been successful in putting viable alternatives on the table. Some clients have moved, but not the majority.”