April 22, 2004 by Canadian Underwriter
Commercial insurance buyers report falling rates in property and general liability lines, signs of a softening market, according to the first-quarter 2004 edition of the Risk and Insurance Management Society (RIMS)/Advisen Benchmark Survey.
Property rates fell by 1.5%, RIMS members say, while general liability dropped 1.4% in the first quarter while slight, these represent the first time two major lines have decreased in the last four years. Property insurance had already seen an 8.8% decrease in the last quarter of 2003.
Price increases in troubled lines are also being witnessed in the first part of 2004, including employment practices liability, crime and even directors’ and officers’ (D&O), where increases were less than 5%.
“The data we have seen over the last three quarters suggested that rate increases were slowing and now the latest numbers are clearly demonstrating the shift in the market from last year,” says Chris Mandel, RIMS vice president and chief risk officer (CRO). “At last year’s RIMS conference, we showed that that D&O liability prices were skyrocketing at a rate close to 175%, but this year, the majority of the lines are experiencing increases of less than five percent; that’s a very dramatic market move.”
However, questions remain about the length and intensity of the coming soft market. “The question right now is not whether the market is softening, but instead how long will it stay this way. We wonder if insurers will be able to take a protracted hit on prices in the current economic climate,” says David Bradford, chief knowledge officer at Advisen. “The renewal numbers are clear, but other indicators, like interest rate levels and stock market valuations, affect the cash position of insurers and, therefore, the prices those insurers charge their customers.”
Bradford points out that insurers need such economic forces to contribute to cash reserves, if the soft market is going to be sustained.
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