And while the global recession may delay the onset of the hard market by keeping insurance demand down, once that market sets in, it’s likely to last longer than normal, said David Bradford, New York-based Advisen’s chief knowledge officer and executive vice president, in a statement.
“In previous hard markets, price increases attracted new capital investment to the market, and the increase in insurance supply led to short hard market cycles,” Bradford said. “In the current economic environment, where credit markets are essentially frozen, capital to create new insurance and reinsurance capacity may be in short supply.”
Advisen notes in its report that embattled insurance giant American International Group should not be singled out for driving rates down and prolonging soft market conditions, despite assertions to the contrary by some of AIG’s competitors—assertions AIG has denied.
According to an Advisen poll of 17 commercial line brokers, AIG “appears to be competing vigorously, but not irresponsibly,” Advisen said.
One polled broker, Advisen noted, said that “some insurers are so obsessed with winning AIG customers that they, not AIG, are more responsible for cutthroat competition.”
As the hard market settles in, not every line of business will increase in price at the same pace, according to Advisen. The reinsurance market, for example, will firm up sooner than the overall primary market and will place upward pressure on heavily reinsured lines such as excess casualty.
Property insurance pricing, on the other hand, will remain soft through 2009, with premiums in some catastrophe-prone areas continuing to fall into 2010 absent major losses, Advisen predicts.
Premiums have already increased for financial institution directors and officers and errors and omissions liability coverages as a result of the subprime mortgage meltdown and ensuing credit crisis, Advisen said.
And workers’ compensation premiums, which have largely stabilized as a result of reforms in several large states in 2005 and 2006, are likely to begin to edge higher by mid-2009.
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