Commercial insurance buyers say the cost of property insurance fell 8.8 percent in the fourth quarter of 2003 marking the first decline in premium prices in any major line of commercial insurance in nearly four years, according to the RIMS Benchmark Survey, an industry survey of market conditions.
Risk managers also said that, while still experiencing some price inflation, other commercial insurance products’ price increases were either significantly lower than in the third quarter or those prices remained relatively flat, quarter over quarter, according to fourth quarter renewal information summarized by Advisen Ltd. for the Risk and Insurance Management Society (RIMS).
Leading indicators in the market, such as policy counts – the number of policies required to complete a desired level of insurance coverage – also suggest excess liability and director and officers liability premiums may be the next lines to experience declines in premium pricing.
These developments reinforce the mounting evidence that the overall commercial insurance market, which had been weathering torrents of price increases since 2000, is calming and the “hard” market of the past few years is softening.
“An actual decline in prices of any major line of commercial insurance is something we have not seen in the market in over four years and coupled with the continuing indications of market price moderation, we can say with more confidence than in the past, that some aspects of the market are poised for a change,” said Christopher Mandel, RIMS vice president, chief risk officer and secretary. “There are still some anomalies, but actual purchase data from risk managers does not lie: price increases have either stabilized or retreated in most lines, and the next few months should make renewals and new placements a bit less challenging than in the past few years.”
Premiums for property insurance decreased by 8.8 percent and the size of limits also declined by 4.4 percent. Other premiums continued to rise, but the rate of those increases slowed dramatically in some cases. For example, directors and officers liability, where increases neared 200 percent in 2003, the rate of increase slowed from 75 percent in the third quarter to just 17 percent in the past quarter. Excess liability experienced similar slowdowns in increases dropping from about 60 percent over the summer to just 12.4 percent last fall.
Fiduciary liability remains the one major line where premium increases continue to rise significantly on an annual basis, although the rate of increase quarter to quarter is not significant. Annualized rates were up about 67 percent compared to 2002. The most recent quarter’s increases are similar to the 66 percent and 68 percent increases experienced in Q1 and Q2 of 2003, so while fiduciary rates continue to rise at a significant rate, the rate of the increases over the year has been relatively consistent.
“The entire industry has intuitively known that the market is softening and now we have the first statistical evidence that gives us the cold hard fact: the market is turning,” said Thomas P. Ruggieri, Advisen’s CEO. “Unlike other qualitative and speculative overviews, the data we are seeing is directly from the renewals of risk management professionals and offers the most insightful review of market conditions available.”
Last quarter, the RIMS Benchmark Survey reported declines in property insurance policy counts and this quarter prices in property premiums declined, suggesting that policy count figures may presage premium costs. This quarter, policy counts figures also declined for excess liability and were flat for directors and officers liability. Policy counts reflect, and the small increase or declines suggest, that even though the costs of some policies continue to rise, supply is catching up to or has caught and surpassed demand, creating greater equilibrium in the market compared to previous quarters.
“We can’t predict what the market will do, but, given past performance where slowdowns in rate increases, coupled with declines in policy counts eventually amounted to declines in premiums, there are indications that excess liability and D&O could be in for changes in the coming months,” said Ruggieri.
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