Renewals prior to Katrina indicate downturn in commercial insurance rates

A recent RIMS Benchmark survey, produced by Advisen Ltd., shows a sharp downturn in commercial insurance rates and indicates that losses from Hurricane Katrina and Hurricane Rita may still cause problems.
The success of the p&c industry during the first half of the year – some managers renewing on or after Oct 1 reported increases of up to 20%, according to RIMS – even following the catastrophic damages and subsequent claims caused by the hurricane season occurring in Q3 may lead to interesting Q4 results, according to RIMS.
The report says that some risk managers indicated that most insurance program renewals have not taken into account the effect of Hurricanes Katrina and Rita. The report further indicates that renewals had also not included property programs, therefore the bulk of renewals included in the survey had secured pricing before the impact of the hurricanes hit the market.
The survey results show that renewal premiums are down on an average of over 5% against the same quarter last year.
Directors and officers liability experienced the steepest decline, falling 8.45%. Property premiums fell just under 6% and general liability was down 5.2%. Workers compensation was the only major line that was down less than 5%, sitting at a decrease of 3.75%.
Advisen points to carrier financial performance as a catalyst for dropping prices. The property & casualty industry experienced record profits in the first half of 2005, leading underwriters to drive down renewal rates in a competitive scramble for increased revenue. But the continued soft market has yet to feel the impact of the devastating hurricanes that hit the Gulf region of the United States in August and September.
“There is increased competition as carriers all vie for renewals in this profitable market. The natural market reaction is to drive down prices,” Karen Beier, member, RIMS board of directors, membership and chapter services portfolio, says. “But the devastation of Katrina and Rita is only now beginning to translate into higher renewal prices. The whole picture could change dramatically in the coming quarters.”
Most risk managers say they received indications of pricing by the time Katrina hit the southern U.S. and these quotations were honored. However, some managers who had either not yet received quotations or whose verbal quotations were not honored say they experienced increases as high as 20% over the prices they had anticipated prior to Katrina or had been originally quoted for their property insurance programs.
“Risk managers who saw their renewal prices drop said they felt lucky, because those who experienced the hurricane effect are now explaining to their management why renewal premiums just went through the roof,” David Bradford, editor-in-chief at Advisen, says. “The real question is whether Katrina and Rita will have a lasting effect and strengthen the market for a time potentially in all lines of business, not just property – or whether this is a short-term blip in what has proved to be a pretty resolute soft market.”