Risk Managers Report ‘Soft Landing’ for Market Pricing

Insurance premiums for businesses continued to slide towards a “soft landing” rather than an abrupt reversal resulting in rate increases, according to risk managers.

While banks and other financial institutions bought directors and officers (D&O) insurance at substantially higher rates, the rest of the commercial insurance market in the first three months of 2009 saw a continuing trend of little or no change in rates, according to RIMS Benchmark Survey, a survey of policy renewal prices as reported by North American corporate risk managers.

Data from RIMS Benchmark Survey corroborates Advisen’s recent forecast that a dramatic shift to higher rates is unlikely and that due to the impact of the recession, commercial insurance buyers will see a more gradual hardening of the market.

General liability premiums fell 3.8 percent for policies renewing during the first quarter of 2009, as compared to a 5.9 percent decline in the fourth quarter of 2008, risk managers reported. The average workers’ compensation premium fell 2.5 percent which is similar to price decreases over the past several quarters.

The average property renewal was flat for the first quarter as compared to a decline of 3.8 percent in the fourth quarter of 2008, the survey revealed. Also noted was a wide range of changes in recent renewal premiums for individual property risks: premium changes ranged from a decrease of 11 percent to an increase of 14 percent.

Risk managers say the D&O market continued to be split between financial institution (FI) risks and all other (commercial) risks. Overall, the average D&O premium increased by 3.0 percent, but the increase was driven entirely by financial companies. Excluding FI firms, the average renewal was down 3.0 percent, the survey found. Higher FI premiums are the outcome of massive losses from the meltdown of the subprime mortgage market and the ensuing credit crisis. By comparison, overall D&O rates fell 1.2 percent in the fourth quarter of 2008 and fell 4.5 percent during that period excluding FI firms.

“Most risk managers continue to see flat or slightly lower premiums at renewal,” says Daniel H. Kugler, a member of RIMS board of directors and assistant treasurer, risk management at Snap-on Inc. “The insurance market is still very competitive and, while some insurers are predicting an imminent hard market, there are few signs that rates will rise sharply anytime in the near future.”

“Even though the credit crisis and the global recession have had a negative impact on insurers’ top and bottom lines, so far financial institution D&O is the only segment tracked by RIMS Benchmark Survey to respond with higher premiums,” says Dave Bradford, Advisen’s executive vice president and editor-in-chief of RIMS Benchmark Survey. “Insurers struggle against falling rates, increased losses in some lines, and sharply lower investment income due to the credit crisis, but the commercial insurance industry is still overcapitalized. We expect to see a favorable pricing environment for risk managers through 2009.”

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.

Source: Risk and Insurance Management Society

Topics Pricing Trends Market Risk Management