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Insurance Market Report November 2000, Insurance rates firming…and rising
This article was written by Mr. John Folsom and is used with permission of Mr. Folsom and Raliegh, Schwartz & Powell, Inc.
A
Spring 2000 broker survey by Conning & Company indicates that "average
prices in virtually every commercial line are rising." This is in
contrast to the Fall 1999 report which indicated that prices were declining
modestly, although more slowly than in the past.
The higher increases are reflected in workers' compensation and commercial auto, with lower increases and slight decreases reported in such coverages as Director and Officers Liability and Umbrella. For business commercial package policies, there are not only rate increases but also a more circumspect appetite among underwriters.
What about the future? The brokers surveyed generally see premiums higher a year from now with most indicating a 10 percent to 15 percent upward movement. They believe insurance company profitability will be a determining factor when it comes to price increases. If this is the case, it should be noted that insurance company net income in the first three quarters of 1999 fell to $17.7 billion from $23.3 billion for the same period the year before. Some industry observers suggest the poor performance is due to inadequate pricing. George F. Williams, writing in American Agent & Broker (January 2000) pointed out that net underwriting losses rose to $15.4 billion in the first nine months of 1999 from $10.2 billion the year before. The insurance industry's combined loss ratio was 106.4. This means insurance companies paid out $1.064 in losses and expenses for every $1 of premium taken in, notes Williams. The trend has been upward over the past several years.
The Conning survey appears consistent with a recent Lloyd's of London report in which 70 percent of 250 brokers indicated that "only certain areas of the market are seeing rate increases while others remain static." Noticeably, however, 17 percent expressed the view that rates are hardening "significantly in most areas." Only 12 percent of the brokers "see rates continuing low in most lines of business."
Finally, Best's Viewpoint (April 10, 2000) only adds further substantiation of the trend. "The property/casualty industry's 1999 results were dampened by widespread adverse loss development related to prior years and continued erosion in current?year margins. A.M. Best expects underwriting results to continue to deteriorate."
The trend only seems to be intensifying this year. "The sins of the past came back to haunt some property?casualty insurers in the first quarter of 2000. Others, surrendering to the temptation to bite the same apple to gain market share at the expense of profitability, will face similar problems in the years ahead," writes Susanne Sclafane in National Underwriter (May 15, 2000).
There appears to be general agreement that changes will not be market?wide or across the board. Rather, a more studied underwriting process will dictate and drive insurance rate changes.
Although it is difficult to predict the future of insurance pricing, the reports suggest that with losses going up and financial results somewhat dismal, the conditions exist for continuing selective increases in insurance rates.
Of central importance to insurance buyers is the emphasis on underwriting selectivity. Some carriers are declining submissions including renewals if they believe such accounts may be unprofitable. As one executive of an insurance company operating in the construction industry expressed the position of other insurers, "We do not intend to establish a bottom line pricing goal, but intend for each account to stand on its own." He also added, "We do not intend to use price to drive good business away!"
last updated: February 14, 2001
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