Q2 rate survey shows heightened distress in U.S. commercial market

Rates are up, capacity is down and alternative risk management mechanisms are increasingly being used, says the Council of Insurance Agents and Brokers (CIAB). In releasing its Commercial Market Index for the second quarter of 2002, which includes July 1 renewals, the CIAB notes that the market is increasingly distressed for commercial insurance buyers.
“Our members report commercial insurance rates show no signs of peaking. Closing the third business quarter since September 11 terrorist attacks and seismic aftershocks of record-shattering natural catastrophes and corporate scandals consumers, carriers and brokers alike are clearly on the cutting edge of pain now spreading to all segments of the US economy,” says CIAB president Ken Crerar.
The report also notes that the lack of action on terrorism coverage is having a profound impact, with brokers noting that the instance of clients going without coverage is on the rise. In fact, terrorism legislation and investment conditions were the two biggest factors affecting stability in the market in the long-term, brokers say.
“There’s no question that House and Senate passage of the federal terrorism backstop legislation now working its way to conference provides some hope. The Council joins other insurance advocates in urging federal policymakers to have a bill signed into law by the president in time to help buyers in the final two quarters of the year,” says Crerar. “It’s good we have made it this far this fast. Then again, with economic fallout so clear and widespread, it’s frustrating it is taking Congress so long to act.”
Rate increases of between 10-50% are being experienced, with mid-to-large size companies being the hardest hit, along with lines like umbrella and medical malpractice. As well, brokers report tighter terms and conditions, higher deductibles and more exclusions with less room for negotiation in the market. Mold and pollution exclusions are also troubling clients.
Some carriers have stopped writing new business with others rejecting accounts outright, brokers add.
The response by many commercial buyers has been to turn to alternative markets, including excess and surplus lines markets and captives. Corporate buyers are also lowering limits, dropping coverage levels, raising deductibles as well.
“”Not surprisingly, our members see increasing consumer frustration,” Crerar notes. “Many industry consumers had hoped the market would settle down by the July 1 renewal period. But our survey proves categorically that did not happen.”