Price Scare

Seven years and running, the soft market shows few signs of loosening its grip on commercial insurance pricing, according to a recent industry study.

Average premiums in every line tracked by the RIMS Benchmark Survey fell in the first quarter, which was released back in April. General liability came in as the most competitive line of commercial insurance during the first quarter, which has been the case throughout much of the soft market phase. General liability premiums fell an average of 4.4 percent. The average property premium, which had been flat over the past several quarters, fell 2.9 percent. The average workers’ compensation premium was down 2 percent. Average directors and officers liability (D&O) premium was off 1.1 percent. D&O average premium had been flat to slightly higher throughout 2009 due to rate increases in the financial institution sector, but those increases now have abated.

“Rate levels are down, but insurers nonetheless posted good results in 2009,” said Robert Cartwright, loss prevention manager for Bridgestone Americas Holding Inc. and a member of the RIMS board of directors

According to Cartwright, since insurers have been posting good results even while keeping premiums low, underwriters have not been under pressure to hike premiums.

“Insurance capacity is abundant throughout the commercial lines market, but the lingering impact of the global recession has reduced the demand for that capacity,” said Dave Bradford, Advisen executive vice president. “Abundant capacity coupled with diminished demand keeps downward pressure on rates. As things now stand, insurance buyers can anticipate another year of favorable insurance prices, although catastrophe claims always are a wild card in the pricing cycle.”

That is all good news for insurance buyers, but not such good news for agents and brokers trying to survive a recession and a soft market.

But there is a development that some think could upset the scenario. And perhaps – between the start of hurricane season, as well as the unfolding oil spill fiasco along the Gulf Coast – we’re already seeing it. Namely: catastrophe. The industry had relatively few to deal with last year, but hurricane forecasters are predicting an active season this year – perhaps as many as 15 named storms, eight hurricanes and four major hurricanes in 2010.

Cartwright and others suggest that forecasts for an above-average hurricane season may be what underwriters need to begin raising prices again across the board. But others disagree and advise brokers not to get their hopes up: As long as capacity remains adequate, soft prices are here to stay.

Jim Rubel of Lockton’s Global Property Practice said that insurers are choosing to lock in what business they can, even at a discounted price, rather than lose good business to a competitor. Others say insurance pricing is being driven by inflation and as long as that remains under control, so will pricing. Their main concern is that eventual high inflation could do more damage to the industry than any storm.

But for now, there is no silver lining in those hurricane forecasts for brokers looking for soft market relief.