Commercial Insurance
Buyers Say Premium Prices Still Falling As Markets Continue to
Soften
RIMS Benchmark Survey™ Shows Property
Premiums Drop for Second Straight Quarter, General Liability Also
Drops, But Length of Soft Market Questioned
Commercial insurance buyers say the costs of two major lines of insurance fell
in the first quarter of 2004, demonstrating that the overall market was continuing
to soften, according to the RIMS Benchmark Survey™, an industry survey
of market conditions released today.
In the first quarter of 2004, premium prices for property insurance fell by
about 1.5 percent. General liability insurance premium prices also fell by
1.4 percent, marking the first time in over four years that prices for two
major lines of insurance retreated in the same quarter. The cost of property
insurance fell 8.8 percent in the fourth quarter of 2003 in the first decline
in premium prices for any major line of commercial insurance since 2000.
The price increases in other lines of insurance also continued to slow, as
employment practices liability, crime and, most notably, directors and officers
liability all experienced price increases of less than five percent. The first
quarter renewal information was summarized by Advisen Ltd. for the Risk and
Insurance Management Society (RIMS).
"The data we have seen over the last three quarters suggested that rate
increases were slowing and now the latest numbers are clearly demonstrating the
shift in the market from last year.," said Christopher Mandel, RIMS Vice
President, Chief Risk Officer and Secretary. "At last year’s RIMS
conference, we showed that that D&O Liability prices were skyrocketing at
a rate close to 175 percent, but this year, the majority of the lines are experiencing
increases of less than five percent; that’s a very dramatic market move."
Advisen, a provider of specialized information, analytic and benchmarking
tools for commercial insurance professionals, analyzes the survey
results continuously, offering a dynamic and virtually real-time
window into the current purchase patterns of commercial insurance
buyers. The results represent data compiled from over 1100 organizations
to date.
The first quarter renewal prices validate the market data trends over the last
two quarters, which indicated that rate increases were declining, but there
is some question about the length and depth of this new market. The overall
commercial insurance market had been experiencing continual price increases
since 2000, which was precipitated by a massive decrease in insurance surplus
from 2000 to 2001. Now, as supply catches up to demand and without a catastrophic
event or high profile scandal, the market has balanced out and most prices
have flattened or decreased.
"The question right now is not whether the market is softening, but instead
how long will it stay this way. We wonder if insurers will be able to take a
protracted hit on prices in the current economic climate," said David Bradford,
chief knowledge officer at Advisen. "The renewal numbers are clear, but
other indicators, like interest rate levels and stock market valuations, affect
the cash position of insurers and, therefore, the prices those insurers charge
their customers."
"Unless those market drivers start contributing more to cash reserves, insurers
will have to rely on pricing to sustain necessary cash positions," he continued. "We’d
like to think that insurance prices are determined solely by market events, but
the economic reality is other forces contribute significantly to the market dynamics,
including how long this soft market will last."
About The Benchmark Survey
Participants who contribute insurance schedule data to the survey can utilize "Chart-Your-Program" software
to create charts and schedules of insurance programs and interactively compare
their data with prior years' survey data. Additionally, participants can use
interactive benchmarking tools to compare costs and programs against continuously
updated marketplace data. The online version of the RIMS Benchmarking Service
is now available for subscription purchase. Visit http://rims.advisen.com/
or the RIMS Store at
www.RIMS.org for details.
Resource: ©Advisen Ltd. 2004
