Council Survey Shows Primary Carriers Have Tightened Policy Terms Significantly

The Council of Insurance Agents + Brokers released findings from a special benchmarking survey of The Council’s members.

The special survey builds on The Council’s quarterly Commercial Insurance Market Index by establishing a benchmark for assessing the impact of the World Trade Center attacks on Jan. 1 renewals and the future market.

Given major fluidity in the commercial insurance market in the wake of the Sept. 11 attacks, The Council compared the commercial property/casualty insurance market today with market conditions as they were one year ago. In addition, The Council focused on changes in use of alternative market mechanisms in order to meet commercial insurance consumers’ needs.

For more than two years, The Council has documented significant hardening of the commercial insurance market. Now, according to respondents, primary carriers have tightened policy terms and conditions significantly, and rates are accelerating their upward trend.

* One broker reports a customer who paid $45,000 for $5 million in trucking coverage last year, is paying $157,000 at renewal.

* Another broker said a general liability policy costing $5,800 last year is $12,000 today, with most carriers declining the coverage altogether.

* A $10 million umbrella policy quoted at $8,900 last year is $27,000 this year.

“As significant as price increases are to commercial customers,” said Ken Crerar, The Council’s president, “the market has been hardening for quite some time. But, the real story emerging since September 11, is the emergence of stringent underwriting.”

Survey respondents reported primary carriers have imposed more restrictions and higher deductibles, as well as eliminated blanket limits for some lines. Some brokers report trouble finding umbrella coverage without layering the higher limits. And, The Council’s benchmark survey shows carriers require more information about risks to be insured even for renewals.

Crerar went on to say that findings confirm what industry leaders have said since Sept. 11. Carriers are looking at exposures risk-by-risk and deciding what to cover and at what price. Crerar added it seems consumers don’t find and can’t get the same coverage they got a year ago, even with higher rates.

The Council found brokers report they are increasing using alternative markets to cover risks that prove difficult to place in the current primary market. Some 45 out of 103 survey respondents, 44 percent of the total, say they are increasing turning to alternative mechanisms to meet their clients challenging needs. A significant number of those say they have turned to the E&S market for coverage not available in the primary market.

“Our members could be expected to turn to alternative markets in order to meet their clients’ special needs,” Crerar said. “In a hard primary market distinguished by rigorous underwriting, we would expect brokers to be creative in assuring that the needs of their clients are met.”

Comparing Nov. 1, 2000 and Nov. 1 this year, the survey showed overall rate increases for small, medium and large commercial accounts – and in eight lines of business. Findings show no significant rate decline for any line of business or account size.

While a majority of the 103 brokers responding to the survey reported increases of 10-30 percent in all account sizes, medium, and large accounts realized the greatest gains.

* Twenty-three percent of brokers reported increases of 30-50 percent for medium accounts and another 35 percent said large accounts rose on average 30-50 percent since last year.

For specific lines – auto, workers comp, general liability, reinsurance, business interruption and aviation – average increases fell between 10-30 percent for 2001. Twenty-six percent of respondents said business interruption rates were up 30-50 percent over last year.

As shown in the attached chart of survey responses, respondents report the largest price increases in property and umbrella coverages, the lines most affected by the Sept. 11 attack. A near majority of brokers say rates for property (46 percent) and umbrella lines (44 percent) are up as much as 30-50 percent. Anecdotally, members report trends worth watching in future surveys.

* Certain property lines – particularly habitational property – are up 50 percent or more since a year ago.
* Umbrella coverage is expensive and hard to get.

Brokers also reported rate hikes over 50 percent for certain “difficult exposures” such as nursing home liability, construction, aviation, trucking and workers’ comp in some states.