Commercial premiums, except coastal property, continue to fall

November 20, 2006

Commercial insurance premiums fell slightly in the third quarter of this year, representing a continuation of the trends that occurred in the past two quarters, according to the RIMS Benchmark Survey, which surveys current policy renewal prices as reported by corporate risk managers.

Property insurance was the only line of business that increased in the third quarter, by 1.7 percent. This modest rise in average property insurance premiums masks the sharp increases that continue to affect businesses with properties in regions exposed to hurricanes and earthquakes. Conversely, property owners in regions not prone to natural catastrophes continue to enjoy falling premiums.

“The situation remains grim for property insurance buyers in Florida and along the Gulf Coast, and earthquake coverage is skyrocketing in California,” said Joseph Restoule, RIMS Board of Directors. “It doesn’t appear as if property insurance premiums in these areas will improve any time soon, but the upside is that risk managers are getting relief in other lines of insurance.”

In the first half of 2006, the property and casualty industry reported an underwriting profit of $15.1 billion, a 31.8 percent increase over the same period in 2005, and it may report record profits for the full 2006 calendar year, pending any major catastrophes. Policyholders’ surplus, the measure of insurance industry capacity, grew 2.7 percent. Advisen forecasts that this additional capacity may fuel competition within the industry that would encourage insurers to decrease premiums.

“Unless you own property on the coast or along a fault line, it’s increasingly a buyer’s market, and market conditions should continue to improve for risk managers,” said David Bradford, editor-in-chief at Advisen. “It looks likely that 2006 will be a banner year for the property and casualty insurance industry. A profitable year will encourage insurers to further cut prices.”

Directors and officers and general liability premiums decreased by less than 1 percent in the third quarter, though competition for small- and mid-size D&O accounts remained intense. Workers’ comp premiums dropped by nearly 3.4 percent, reflecting the impact of reform measures in large states such as California and Florida.

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