There’s been a seemingly endless parade of bad news coming from Corporate America. But here’s some rare good news.
A new survey by Aon Corp., the world’s second-largest insurance broker, indicates that prices for U.S. commercial-property insurance have begun to steady—and in some cases, even come down. In a few instances, rates have declined by as much as 20 percent.
Following a highly competitive, low-premium rate environment in the 1990s, commercial real-estate insurance prices began to increase in 2000. After the terrorist attacks of September 11, those prices increased dramatically. Property-insurance rates rose a whopping 67 percent on average in the year following 9/11.
According to the survey, limits were down 47 percent in 2002, while deductibles increased by 100 percent. Barring any shock loss due to either natural catastrophe or terrorist attack, or significant impact from a major company failure or ratings downgrade, the property market will moderate in 2003, according to Aon.
Why? Well, most global insurers have been struggling with declining investment rates and the need to cut losses, and that’s kept rates high across most insurance classes. But an increase in capacity—and more intense competition for business—has kept property prices in check. “The U.S. property market appears to be bucking the trend,” said John Turner, chairman of Aon’s U.K. Global Risks division.
“Evidence is emerging that the market is on the brink of a downward cycle,” the Aon report said. “It is probably only being held up by management discipline among insurers who are committed to returning healthy profits on their underwriting.” Should this discipline break in the face of stiff competition, rates are likely to continue to fall in the coming 12 months, Aon analysts contend.
Although property prices are on a downward trend, underwriters remain selective in their choice of new clients, the Aon survey indicates. New business continues to be quoted on a case-by-case basis, and is contingent on a carrier’s appetite for risk.
Interestingly, the survey showed that neither insurers nor insureds are thrilled by the U.S. Terrorism Risk Insurance Act. According to Gary Marchitello, managing director of Aon’s National Property Syndication in the United States, many corporates say the act does not provide adequate coverage.
(Editor’s note: to see if the turbulent insurance market could undermine your company’s coverage, read “How Sure Is Your Insurance?”)