July 15, 2004 by Canadian Underwriter
The soft market is well on its way, evidenced by findings in the second quarter 2004 Risk and Insurance Management Society (RIMS)/Advisen benchmark survey which show half of all commercial accounts seeing rate decreases on renewal.
The survey of risk managers finds commercial premiums fell by an average 18% during the quarter, and even the previously difficult lines such as directors and officers (D&O) and general liability saw rates decline on renewals.
Declines outpaced rate increases in every major line except workers’ compensation, RIMS notes. D&O rates dropped on average 16%, with more than 61% or renewals either seeing a decrease or remaining flat. Property coverage, which has shown declines in previous quarterly surveys, declined again this quarter or remained flat for more than 65% of renewals. These declines averaged 18%.
On the flipside, half of the workers’ compensation renewals saw increases, about 14% on average.
“Clearly, when 100 risk managers go into the market and 50 come back with a significantly better priced deal than the one they had last year, that means we are starting to experience a turn in the market from the past several years of large price increases ,” says Daniel H. Kugler, RIMS vice president, membership. “The continued decline in D&O prices affirms that even the highest flier in the past few years is now coming back to earth.”
RIMS cautions that prices are not dropping dramatically yet. Average premiums for property and general liability were down 1% and 2% respectively, with D&O rates flat. Again only workers’ comp stands out as the major line to see an increase over the quarter, but this was by just 1%. This line and D&O had seen the sharpest double-digit increases during the hard market, so this marks a steep drop of from that period.
“The bottom has not fallen out of the market, but this is a deliberate march to a soft market,” comments David Bradford, editor-in-chief at Advisen. “The mood at the carriers is more down than the average price numbers might suggest, but when you figure out that underwriters are losing decisively in half of all negotiations, then you begin to understand the real sense of the market.”