Commercial Insurance Market Index Shows Evidence of Hardening Market

October 26, 2001

According to the recently released third-quarter Commercial Insurance Market Index — reflecting market observations of the largest commercial insurance brokers across the nation — commercial insurance premium rates increased last quarter for all account sizes and across all property/casualty lines. In addition, the Index may show some of the first hard national evidence of market fallout from the September 11 attack.

The Council of Insurance Agents + Brokers President Ken Crerar said, “The September 11 terrorist attack on the World Trade Center adds fuel to the harder market trends we have observed for over a year now. I believe our members are reporting a significant trend in the marketplace.”

The Index, a service of The Council, shows the majority of third-quarter increases are in the 10-30 percent harder market range. However, a number of third-quarter Index respondents reported increases between 30-50 percent — and a few saw even higher price increases in property, umbrella, and business interruption coverage. Some respondents observed renewal increases of 100 percent or more.

The Index showed no third-quarter decrease in any of eight commercial insurance lines: auto, workers’ compensation, property, general liability, umbrella, reinsurance, business interruption and aviation. Past reports have shown some slight softness in some regions for workers’ compensation.

To capture the impact of the Sept. 11 events, members were asked some open-ended questions about specific problems they were encountering in the market. “The comments are revealing,” Crerar said. “There is some confusion in the market while insurers evaluate the recent event’s impact on their capacity and appetite for underwriting.”

A majority of brokers reported serious problems in the property market and with umbrella coverage since the Sept. 11 attack. As one broker said, “September 11 made things go wild. Property went crazy, especially for large values or where reinsurance is involved. We have also seen larger increases in other lines, particularly workers’ compensation, umbrella and large casualty accounts.”

Perhaps most significant is that problems brokers identified are not limited to a few lines. Capacity is an issue for a range of coverages, including property (particularly habitational); aviation and airports; contractors; all types of trucking; reinsurance; nursing homes and catastrophe. While capacity was already shrinking for some of these lines, today’s market is making it even more difficult to place most commercial insurance.

While some respondents said increased reinsurance capacity and rates were affecting renewals, “the full impact of reinsurance increases on the primary market will not be fully felt until reinsurance treaties are renegotiated — beginning in January 2002,” Crerar said.

The Index has tracked premium rates since the last quarter of 1999, when a hardening of the commercial insurance market first began to surface. Through the Index, The Council documents trends in property/casualty premium rates throughout the U.S. and by region. The third-quarter 2001 survey, covering the period from July 1-Oct. 1, 2001, was sent to 250 Council member firms throughout the U.S. Third-quarter results are based on 108 responses from all regions.

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