CIAB: Q3 Marks Return of Competitive Pricing

October 23, 2003

The commercial insurance marketplace witnessed a return to competitive pricing for a number of lines during the third quarter of 2003 and flattening or decreasing premiums for commercial property coverage, according to the latest commercial market index released today by the Council of Insurance Agents & Brokers.

“Although it is not surprising that rates are softening somewhat, there are a number of factors still present in the marketplace that make it unlikely that we will be seeing any rapid decline or a retreat to soft market conditions in the near future,” said Ken A. Crerar, president of the Council.

Among the factors likely to moderate any declines in the general commercial market are a still-weak economy, low yields on investments and the continuing need for insurers to build reserves and strengthen their overall financial condition, Crerar said.
Nevertheless, the third quarter survey showed a marked easing of prices for all sizes of accounts in all sections of the country. Nearly one-third of the small and large accounts and 27 percent of the medium-sized accounts experienced no change in premiums or a drop of up to 10 percent for renewals and new business in the third quarter.

The survey also showed that premiums for more than 40 percent of all sizes of accounts increased only marginally — between 1 and 10 percent.

Although 12 percent of small accounts, 20 percent of medium accounts and 17 percent of large accounts still experienced premium increases of 10 to 20 percent, only a handful of brokers reported premium increases exceeding 20 percent for the survey period.
The Council represents the nation’s top insurance brokers who write 80 percent of the commercial premiums and administer billions of dollars of employee benefits accounts each year.

Fifty percent of the brokers responding to the survey reported that commercial property premiums have either held steady or decreased by up to 10 percent in the August-September period, a drop-off in costs equaled only by 54 percent of the terrorism coverage accounts.
Although the survey showed that premiums for business interruption insurance (44 percent), general liability (30 percent), surety bonds (28 percent) umbrella coverage (23 percent) and workers’ compensation (27 percent) either held steady or retreated slightly during the third quarter, those lines were not softening as consistently as commercial property.

For example, 42 percent of business interruption accounts, 63 percent of general liability accounts, 52 percent of workers’ compensation accounts and 60 percent of umbrella accounts experienced premium increases in the 1 to 20 percent range. And for some lines including broker errors and omission policies, construction risks, directors and officers insurance, medical malpractice and general liability coverage, premiums were still up sharply.

In general, while premiums may be flattening and competition may be increasing somewhat for new business, the brokers said insurance underwriters are still insisting on tighter terms and conditions when writing renewals.

“Although lines are profitable, underwriters state they are under pressure to continue raising rates. Interestingly, they are charging more for renewals than on new business so that they can meet their charge to raise renewal rates,” said a broker in the Pacific Northwest.
In an open-ended question about challenges in the marketplace, the brokers most often listed consistency in capacity and pricing and carrier solvency as their greatest concerns.

“Maintaining consistent, stable prices,” said one broker from the Northeast.

“Carrier solvency,” replied another broker. “We’ve lost several this year due to downgrades and expect several more to fall before things improve.”

“Determining which carriers will be left standing three-to-five years from now,” said a broker from the Northeast.

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