A near decade of declining rates for three out of four commercial lines of insurance seems to have ended. A recent benchmarking survey shows a slight uptick for general liability, property, and workers’ compensation.
In the third quarter, the average renewal premium rose 1.2% for general liability, 1.6% for property, and 2.1% for workers’ comp, according to the RIMS Benchmark Survey, which is put together by Advisen, a risk-data analysis firm. Only directors’ and officers’ (D&O) insurance premiums fell, by an average of 1.9%. “We’ve seen some stabilizing in pricing over the last several quarters, with prices falling just slightly or having no change, but this is the first time we’ve seen three of the four lines trending upward since 2004,” says David Bradford, editor-in-chief at Advisen. The soft market began soon after premiums “skyrocketed” in 2001 and 2002 after the 9/11 terrorist attacks and stock market woes during that time, he says.
Bradford attributes part of the recent shift upward to the rising level of catastrophic events around the globe (such as Japan’s earthquake earlier this year), which has resulted in underwriting losses for insurers. In addition, as the economy has improved — however slight — insurers’ capacity has fallen as companies need more insurance. Higher head counts, for example, mean a greater need for workers’ compensation.
D&O insurance, on the other hand, is where insurance buyers will still see rates more in their favor, relative to other lines they need to buy. “The D&O market is characterized by a glut of capacity,” says Dean Klisura, who heads U.S. risk practices at insurance broker Marsh. As a result, buyers have seen premium reductions of as much as 10%.
This is true despite increased litigation and unfavorable equity markets, Klisura acknowledges, and may be partly due to the number of boutique firms specializing in D&O that cropped up after the financial crisis.
Still, observers of the insurance market emphasize that, overall, commercial insurance rates are competitive. The RIMS survey reflects only average rates, and many buyers are still able to negotiate for lower premiums, Bradford says.