Underwriting losses and anemic investment returns are putting pressure on
rates, and absent a major catastrophe, insurance buyers should expect to start
paying more for their commercial insurance beginning in the fourth quarter of
2009 or first quarter of 2010, according to a report from insurance industry
research firm Advisen.
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.
Filed by Sally Roberts of Business
Insurance, a sister publication of Workforce Management. To comment,
e-mail editors@workforce.com.
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