Pricing discipline is the key factor separating the four major insurance sectors in the U.S., according to a set of commentaries Standard & Poor’s will release in the next week.
The health and life insurance industries have set premiums at levels commensurate with their payout responsibilities and have a stable outlook. For commercial-lines writers and reinsurers, on the other hand, a brief interlude of price hikes in the wake of Sept. 11 will not make up for years of soft premiums and inadequate reserves. The outlook for those two sectors is negative.
In both the commercial-lines and reinsurance sectors, catastrophe-induced price hikes are a palliative, but not a cure, for years of lax underwriting. The sectors are facing a voracious tide of litigation, not only through the well-trodden path of asbestos-related claims but through the shadowy newcomer of professional liability, for which industry reserves in no way resemble adequacy.
Claims have grown rapidly in directors’ and officers’ liability insurance, along with errors and omissions policies, fiduciary liability, and medical malpractice. These developments are in addition to deep-set problems with workers’ compensation.
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