May 25, 2006 by Canadian Underwriter
The commercial insurance industry remained a buyers’ market in 2005 and shows no signs of hardening any time soon, according to the 2005 Annual Benchmark Survey from the Risk and Insurance Management Society (RIMS).
The 2005 survey revealed that the total cost of risk (TCOR) was down for the first time since 2001. Following 9/11, insurance costs skyrocketed through 2003. While insurance costs fell in most lines in 2004, higher retained losses and rising worker compensation costs through the first half of the year pushed TCOR up marginally. However, in 2005, the median TCOR fell about 11% driven almost completely by lower insurance costs, attributed by Advisen analysts to abundant underwriting capacity which led to heightened competition.
Despite the devastation caused by Hurricanes Rita, Wilma and Katrina, the property & casualty insurance industry posted approximately US$55 billion in earnings in 2005.
“While the effects of these hurricanes will be felt by the people of the Gulf Coast region for years to come, their impact on the overall insurance market is much less dramatic and long-lasting,” David Bradford, editor-in-chief, Advisen Ltd., says. “Consolidated industry policyholders’ surplus, the measure of aggregate insurance industry capacity, rose in 2005 despite the catastrophe losses, and we believe this excess capacity will cause premium prices to decrease.”
In the “Executive Summary” of the survey, Bradford notes almost every class of business tracked for the survey showed a decrease in the median premium per US$1,000 of revenues for the year. Viewed on a quarter-by-quarter basis, property premiums experienced an upturn in the fourth quarter but it is likely the increase is only a short-term response to catastrophe losses.
The “2005 RIMS Benchmark Survey” book provides risk managers objective and actionable insurance market information based on the insurance programs of more than 1,400 participants from the U.S. and Canada – the largest number of respondents in 25 years of benchmark surveys. The survey is produced and published by Advisen Ltd., which collects and analyzes the data and provides easy-to-use, online interactive tools and services.