Risk managers predict both hard and soft markets arising out of financial crisis

The cascading financial services crisis in the United States has risk managers bracing for a hard market, although some suggest the crisis may actually prolong the current soft market, participants of a Risk and Insurance Management Society (RIMS) Webinar heard.
Janice Ochenkowski, RIMS president and managing director at Jones Lang LaSalle, was a panelist at the Webinar, entitled: ‘Risk Management Strategies in an Unsettled Financial Market.’
Ochenkowski suggested there are two schools of thought on whether or not the market will begin to harden.
One the one hand, she noted, the need for cash flow in the wake of diminishing investment returns might lead to a hardening market if “market [participants] stand firm on pricing [they need] to maintain in order to manage their business.”
On the other hand, Ochenkowski continued, “the same need for investment income is going to continue the soft market because there will be competition for those dollars and the need to have that cash flow is going to continue, and that will continue to drive prices down.”
Ochenkowski admitted she was uncertain which of the two scenarios would occur.
Fellow panellist Bill Strachan, a risk manager for the Town of Enfield, Conneticut, said he had a gut feeling that as insurers’ investment income dries up, it will lead to adjustments that result in a hard market.
“Insurers are experiencing underwriting losses, as of [year-end] the industry’s combined ratio is estimated [by A.M. Best] to reach 103%, the surplus is dropping like a stone and loss ratios are climbing,” Strachan observed. In addition, the number of people able to make infusions of capital into the market is diminishing, he added.
“It’s going to be surprising and it’s going to happen quickly and it’s going to be very volatile over the next six months,” he concluded.