Study: General Liability Losses, Expenses Likely to Rise Rapidly

March 12, 2009

The general liability line of insurance has produced industry-wide combined ratios below 100 percent for the past two years, but this profitable underwriting performance is unlikely to continue, analysts report.

General liability losses and expenses are expected to increase faster than premium increases in the next couple of years, according to a new study by Conning Research and Consulting,

“We project that the next couple of years will see a moderating in general liability premium reduction, gradually leading to a modest increase by 2010,” said Mark Jablonowski, analyst at Conning Research & Consulting. However, losses and expenses are forecast to grow more quickly, analysts say, with a resulting rise in combined ratios reaching 107 percent by 2010.

“In the longer run, the future of the general liability insurance market will play itself out between the cumulative effects of small to moderate losses and the rising prospect of mega-risks,” Jablonowski said.

The Conning Research study, “General Liability: Staying Relevant (and Profitable) in the New World of Risk,” identifies the issues facing the market and a number of considerations and actions that insurers should address to respond.

“History has shown us a cyclical increase in general liability losses in periods following recessions,” said Stephan Christiansen, director of insurance research at Conning. At the same time, longer term secular trends point to an increase in both smaller claims and larger mega risks. “Meeting the challenges to profitability requires a variety of considerations on the part of insurers.”

Christiansen added that foremost is the ability to monitor trends in costs — particularly losses — and demand. “Longer term, the best prospects for general liability insurers may come from expanding the model of specialization in risk that has already proven to be a successful differentiator among companies.”

The full report is available for purchase from Conning Research & Consulting at www.conningresearch.com.

Source: Conning Research & Consulting

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