Risk Management

A Tale of Two Insurance Markets

Overall, commercial premiums dipped for companies that don't really need hurricane or earthquake insurance.
Stephen TaubNovember 7, 2006

A tamer than expected hurricane season means no, or at least puny, rate hikes for property insurance, provided your company doesn’t operate in an area prone to disasters. According to the latest RIMS Benchmark Survey, commercial insurance premiums fell slightly in the third quarter, a continuation of the pattern experienced in the year’s two prior three-month periods.

In fact, the only line of business to experience a price increase in the third quarter was property insurance, which saw a 1.7 percent hike. However, RIMS warns that the seemingly modest rise in average property insurance premiums “masks the sharp increases that continue to affect businesses” with properties in regions exposed to hurricanes and earthquakes.

Joseph Restoule, a RIMS board member, asserted in a press release that the situation remains grim for property insurance buyers in Florida and along the Gulf Coast. What’s more, earthquake coverage is skyrocketing in California. “It doesn’t appear as if property insurance premiums in these areas will improve any time soon,” he adds. “But, the upside is that risk managers are getting relief in other lines of insurance.”

The relatively flat premiums do not seem to be hurting the insurance industry. According to RIMS, in the first half of 2006, the property and casualty (P&C) industry reported an underwriting profit of $15.1 billion, a 31.8 percent increase over the same period in 2005. In addition, the P&C industry may report record profits for the full 2006 calendar year, pending any major catastrophes, noted the report.

There is one ray of hope for customers seeking price drops: Policyholders surplus, the measure of insurance industry capacity, grew 2.7 percent. This additional capacity may fuel competition within the industry that would encourage insurers to decrease premiums, RIMS notes. Indeed, David Bradford, editor-in-chief at Advisen, which provides data and analysis tools for the insurance industry, stresses that unless a company owns property on the coast or along a fault line, “it’s increasingly a buyer’s market, and market conditions should continue to improve for risk managers.”

At the same time, Bradford emphasizes that 2006 likely will be a “banner year” for the P&C industry. “A profitable year will encourage insurers to further cut prices,” he reckons.

According to the survey, premiums for directors and officers (D&O) and general liability decreased by less than one percent in the third quarter, though competition for small- and mid-size D&O accounts remained intense. Workers’ compensation premiums fell by nearly 3.4 percent, “reflecting the impact of reform measures in large states such as California and Florida,” reported the study.

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