RIMS: Soft Market Takes Hold as Commercial Premiums Decline 15%

July 15, 2004

In the continuing march toward a soft market, most commercial insurance buyers renewed their policies at the same or lower premiums last quarter, according to a survey of corporate risk managers.

Data from the survey shows that premiums declined by 15 percent on average and as high as 52 percent for up to half of the directors and officers (D&O) liability, property and general liability policies renewed in the second quarter.

The market conditions were released in the quarterly results of the RIMS Benchmark Survey, an industry survey. The second quarter renewal information was summarized by Advisen Ltd. for the Risk and Insurance Management Society (RIMS).

The survey results indicate that price declines outpaced price gains in every major category except workers’ compensation. More than 61 percent of D&O liability insurance renewals were either less expensive (16 percent lower on average) or flat compared to last year. More than 65 percent of renewals of domestic property insurance were priced lower (18 percent less on average) or flat. Fifty percent of all workers’ compensation renewals were priced higher (14 percent on average) and 43 percent were priced lower (an average of 13 percent), with the remaining renewals coming in at the same level.

“Clearly, when 100 risk managers go into the market and 50 come back with a significantly better priced deal than the one they had last year, that means we are starting to experience a turn in the market from the past several years of large price increases,” said Daniel H. Kugler, RIMS vice president for membership. “The continued decline in D&O prices affirms that even the highest flier in the past few years is now coming back to earth. We anticipate that the market will continue to soften at least through the end of the year.”

Though the momentum towards a soft market continues to build, underwriters still achieved rate increases on a significant number of renewals. Average premium prices for the quarter across the entire market declined only slightly or remained flat, creating a potentially false impression that the overall market was stagnating. Average D&O premium prices, which had experienced the most dramatic growth in the heart of the recent hard market, were essentially flat in the quarter.

Property and general liability posted rate decreases, with property (-1%) down for the third consecutive quarter, and general liability (-2%) in the negative column the second quarter in a row. Workers’ compensation insurance was the only major line included in the survey that recorded a discernible increase on average, coming in at one percent higher. D&O insurance and workers’ compensation had both been experiencing significant double-digit increases as recently as last fall, but both have seen precipitous drop-offs in the rate of increase in the last few quarters.

“The bottom has not fallen out of the market, but this is a deliberate march to a soft market,” said David Bradford, editor-in-chief at Advisen. “The mood at the carriers is more down than the average price numbers might suggest, but when you figure out that underwriters are losing decisively in half of all negotiations, then you begin to understand the real sense of the market.”

Advisen said the results represent data compiled from over 1,100 organizations to date.

The Risk and Insurance Management Society, Inc. (RIMS) serves 8,800 risk management professionals around the world.

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