Pricing to stabilize but deductibles stay where they are: Aon

Commercial insurance pricing is likely to stabilize, with increased capacity and competition in 2005, but the high deductibles and retentions taken during the recent hard market will likely remain in place. This, according to the annual “Insurance Market Overview” published recently by Aon.
The broker speculates both sides will continue to be vigilant, with competition setting in for the most attractive risks (i.e. those with the best loss records), at the same time that commercial clients remain focused on carrier financial security, specifically in directors’ and officers’ (D&O) markets.
And despite increasing capacity, underwriters are expected to maintain discipline, with a focus on submission quality and depth, and modeling.
Some lines could be impacted by rising tort costs, such as D&O and fiduciary, however even heretofore troubled lines such as health care and aviation should see increased stability compared to the past few years.
While the industry experienced financial growth in 2004, it also faced new challenges, the report notes, specifically in terms of catastrophe losses related to hurricanes in the U.S. and increased regulatory scrutiny. At the same time, potential market turmoil continues to loom with the uncertain future of the Terrorism Risk Insurance Act (TRIA). “Given these uncertainties and the existing regulatory environment, perhaps industry management will have some support for maintaining the pricing discipline that has resulted in two relatively favorable years for the industry,” the report states. “The significant growth in market surplus and capacity, however, is already affecting the competitive pricing environment in some lines.”