Commercial insurance buyers experienced a turbulent past year as the hard market reached its peak and then began its current softening trend, according to the annual market survey from the Risk and Insurance Management Society (RIMS), which was released this week as a printed companion to the online RIMS Benchmark Survey.
The survey suggests that dramatic price swings, the lingering effects of human-engineered catastrophes like terrorism and corporate scandal, the demise of venerable industry names and the continued rise of non-traditional insurance products and markets all characterized the year’s tumult, which, in the end, may ultimately benefit risk managers.
In the Society’s annual summary of market conditions, the 2003 RIMS Benchmark Survey, risk managers representing nearly 1000 companies offer statistics that recount a year in which the market began to shake off the shock of seminal events of the last two years, such as 9/11 and Enron, and transform itself into what is likely to be a much more efficient market. While premiums have risen in every line, the Survey highlights developments that are increasing competition: billions of dollars in new capital, the emergence of Bermuda as a major center of international risk capacity, the continued globalization of the insurance industry, and the increasingly prominent role of captives and alterative risk transfer mechanisms. Buyers have new sources of capacity and much more flexibility in financing risk, suggesting that future insurance cycles may be shorter and shallower. The most current pricing data imply that the hard market, which has been in full swing only since late 2001, is losing steam.
The Survey results and the annual publication were produced by Advisen, a provider of specialized information, and analytic and benchmarking tools for commercial insurance professionals, which examines the Survey results continuously over the year. Advisen also offers a dynamic and virtually real-time window into the on-going purchase patterns of commercial insurance buyers through an online subscription service and issues quarterly summaries of market conditions derived from that data.
Most of the trends and developments captured by the Survey cast new light on the well-reported issues of rising insurance costs of the last year. Premiums have increased in every line and for every industry, but each line of business has experienced periods of stabilizing, or even slightly declining, rates. Likewise, while retentions have been growing on average, as expected in response to rising rates, most buyers have held even and a few have decreased the amount of risk they keep. In short, the insurance industry has been deep into a hard market, but it has been a hard market full of contradictions and uncertainty, according to the Survey, and all indications are that the hard market is on its last legs.
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