RIMS Benchmark Survey Reports Major Downturn in Commercial Rates

October 20, 2005

Commercial insurance premiums took a sharp downward turn in the third quarter, according to the RIMS Benchmark Survey, an industry survey of current policy renewal prices as reported by corporate risk managers.

But some risk managers also said most insurance program renewals had yet to weather the effect of Hurricanes Katrina and Rita and property programs were now experiencing as much as a 20 percent rate increase. The bulk of renewals in the survey had secured pricing before the impact of the hurricanes hit the market.

Survey results showed renewal premiums down on average over five percent against the same quarter last year. Directors and officers liability experienced the steepest decline, falling 8.45 percent. Property premiums fell just under six percent and general liability was down 5.2 percent. Workers Compensation was the only major line that was down less than five percent; that line was down 3.75 percent.

The RIMS Benchmark Survey is produced by Advisen Ltd., which collects and analyzes the data and provides the technology infrastructure for the survey’s online services.

Advisen editors who manage the survey pointed to carrier financial performance as a catalyst for dropping prices. The property/casualty industry experienced record profits in the first half of 2005, leading underwriters to drive down renewal rates in a competitive scramble for increased revenue. But the continued soft market has yet to feel the impact of the devastating hurricanes that hit the Gulf region of the United States in August and September.

“There is increased competition as carriers all vie for renewals in this profitable market. The natural market reaction is to drive down prices,” said Karen Beier, member, RIMS Board of Directors, Membership and Chapter Services portfolio. “But the devastation of Katrina and Rita is only now beginning to translate into higher renewal prices. The whole picture could change dramatically in the coming quarters.”

Advisen conducted a secondary set of interviews with about 30 companies who had renewed programs on or after Oct. 1 and asked if the hurricanes had any substantive effect on pricing. Most risk managers responded that they had already received indications of pricing by the time Katrina hit the southern U.S. and those quotations were honored. But some managers who had either not yet received quotations or whose verbal quotations were not honored said they experienced increases as high as 20 percent over the prices they had anticipated or had been originally quoted for their property insurance programs.

“Risk managers who saw their renewal prices drop said they felt lucky, because those who experienced the hurricane effect are now explaining to their management why renewal premiums just went through the roof,” said David Bradford, editor-in-chief at Advisen. “The real question is whether Katrina and Rita will have a lasting effect and strengthen the market for a time — potentially in all lines of business, not just property — or whether this is a short-term blip in what has proved to be a pretty resolute soft market.”

The results of the RIMS Benchmark Survey are available online, published continuously throughout the year, and in a book, published once each year. Visit www.RIMS.org/benchmark for details.

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