Broker Survey Shows 4Q Premiums Drop

January 24, 2005

More than 80 percent of small and large commercial property/casualty accounts and 90 percent of medium accounts found their insurance premiums either stable or down by as much as 20 percent during the fourth quarter of 2004, according to a survey by The Council of Insurance Agents & Brokers.

The CIAB’s quarterly Commercial Market Index Survey showed a significant softening in pricing during the period between Oct. 1 and Dec. 31, 2004.

The survey showed that 30 percent of small accounts experienced no change in premium rates, while 42 percent had premiums down 1 percent to 10 percent, and 12 percent dropped 10 percent to 20 percent. The average small account premium declined by 4 percent.

Although 12 percent of medium accounts reported no change in premiums, the vast majority experienced a modest downtick. More than half of the medium accounts (53 percent) experienced declines in premiums of 1 percent to 10 percent, with 25 percent more down 10 percent to 20 percent. The average medium account premium declined by 7 percent.

Large accounts also were paying significantly less for their insurance coverage. Only 4 percent experienced no change in premium rates, but 44 percent of the large accounts were down 1 percent to 10 percent. An additional 34 percent were down 10 percent to 20 percent, and 6 percent were down 20 percen to 30 percent. The average large account premium was down by 10 percent during the fourth quarter.

The same trends in premiums were apparent in virtually all commercial lines, but commercial property premiums dropped the most. Broker errors and omissions policies, commercial auto rates, workers’ compensation and construction risks were the lines most likely to experience premium increases, although most hikes were modest, in the 1 percen to 10 percent range.

In answers to open-ended questions about market conditions, brokers said insurance companies are more aggressive in seeking out new business although they seem to be trying to hold-the-line on renewals. There were some reports of relaxed underwriting, but the trend was not widespread.

Meanwhile, several brokers from around the country signaled a potential problem looming for residential construction coverage. Brokers from all regions reported they are having difficulty finding insurance companies willing to write policies for residential construction risks.

“Carriers continue to retreat from residential construction exposures. This looks like a crisis in the making,” said one broker.

“Construction risks continue to be difficult if the account is a general contractor or larger residential contractor,” agreed a broker from the Northeast.

The problem relates to construction defects in neighborhood developments or high-rise condos where a number of residents can band together and bring a class-action suit against the contractor, the developer or both, one broker from the Southeast said.

“It’s been brewing for eight to 10 years, but it has been of great concern for the last three years in our area,” he said. “I basically have one large general contractor left in my book of business, and he is being non-renewed this year.”

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