Soft Market Persists; Fierce Competition to Continue into 2011: Marsh

Soft commercial insurance market conditions persisted through the third quarter of 2010, with lower rates on average across major coverage lines, according to a new report from broker Marsh.

Intense competition and overabundance of capacity continue to define the commercial insurance market, which is likely to remain stable into 2011 barring an unforeseen market-changing event, Marsh said in its report, U.S. Insurance Market Report 2010, Third Quarter Update: Insureds Net Benefits as Downward Rate Pressures Persist.

Declining Renewals

Based on data compiled from Marsh accounts renewing in the third quarter, the report found that:

• Property rates declined an average of 6.1 percent;
• General liability rates declined an average of 6.7 percent;
• Workers’ compensation rates declined an average of 5.3 percent;
• Auto liability rates declined an average of 0.1 percent; and
• Directors & officers liability (D&O) rates declined an average of 8.7 percent.

“Commercial insureds continue to experience favorable market conditions as competition among insurers remains high and capacity plentiful,” said Joe McSweeny, president, United States and Canada Division, Marsh. “A surplus of capacity, continued profits for insurers, and a stable litigation environment should lead to continued stability in the fourth quarter of 2010 and into 2011.”

Marsh’s report found that despite an estimated $18 billion in worldwide insured catastrophe (CAT) losses in the first two quarters of 2010, property rates for domestic and global businesses purchasing insurance in the U.S. typically declined five to 10 percent in the third quarter.

Barring some unforeseen event, the property market’s abundance of capacity will likely impel insurers to further decrease rates into 2011 in order to maintain market share, according to the broker’s report.

Similarly, primary casualty – comprised of workers’ compensation, general liability, and automobile liability – remains largely a “buyer’s market,” with rates trending downward on average across all lines of business through the third quarter.

Collateral

Collateral continues to be an important negotiation point with primary liability carriers and often overshadows rate discussions during renewals. Insureds with a concentration of collateral with one carrier, or with specific collateral issues or needs, may have difficulty finding alternative solutions, Marsh said.

Rate trends for lead umbrella generally were similar to those experienced in the primary market, while excess liability rates showed moderate decreases on average, based on the class of business and competition levels.

The primary and excess D&O market remains extremely competitive, with premium reductions continuing to be realized in the first three quarters of 2010 for companies with favorable risk profiles.

Rate changes for individual companies varied significantly depending on several factors, including market capitalization, industry, liquidity and loss experience.

Marsh’s third quarter update is based on data from Marsh’s Global Benchmarking Portal and reflects transactions brokered by Marsh through the end of the third quarter.