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By John Goff
After a run of five years where commercial insurance rates
declined, vendors pretty much believed the soft insurance market would finally break
in 2010.
They need to rethink. With surplus capital capacity, and
tepid demand for their products, insurers will likely be forced to lower their
commercial insurance rates again next year.
“In the
absence of major catastrophe losses,” noted David Bradford, executive vice
president of consultancy Advisen, “insurance buyers will continue to enjoy
favorable insurance pricing in 2010.”
Indeed, the Great Recession has really done a job on insurance
companies. Their investment portfolios have been ravaged by falling stock
prices and interest rates. And a recent drop in policyholder capital -- down
$56 billion in the first half of 2009 -- has not triggered an expected rise in rates.
“Under
more typical circumstances, this would be a catalyst for a turn in the pricing
cycle,” explained Bradford, “yet premiums in many lines of commercial property
& casualty insurance continue to fall.”
The
drop in business -- and prices -- has slammed insurers. Indeed, property &
casualty net premiums written fell 4.2 percent in the first half of 2009.
The
good news, of course, is that corporate buyers of insurance can once again turn
the screws on their brokers in 2010. Premiums for property and casualty
policies were flat or slightly down in 2009. Rates may drop even further next
year. Bradford noted that insurers have raised rates on businesses that operate
in coastal areas. But if no major hurricanes strike the U.S. the rest of the
year, even companies with seaside facilities should be able to negotiate
reduced rates next year.
Likewise,
general liability premium prices will continue to fall, a trend that commenced
in 2004. Such rates are often tied, in part, to a company’s sales and payroll.
Clearly, corporate layoffs have reduced that exposure – and thus cut into the
premiums that insurers charge. Advisen expects additional small decreases in
the average general liability premium over the next several quarters, leaving
rates at pre-9/11 levels.
D&O
coverage is a different story -- assuming you happen to be a D or an O at a
financial services company. Directors and officers at businesses involved in
the subprime mortgage fiasco have been inundated with lawsuits over the past
year or so. Not surprisingly, D&O rates for those companies have spiked by
30 percent over the past twelve months, according to Advisen.
Non-financial
companies -- particularly those without public floats --
have not been singed by these sorts of suits, and their D&O premiums have
steadily declined.
That
trend looks set to carry on in 2010. Indeed, until the economy begins to truly
pick up -- and excess policyholders’ capital dries up – commercial customers
will be able to drive hard bargains across almost all lines of coverage.
For vendors, it’s a
case of same old, same old. Says Bradford: “Insurers, and especially brokers,
will continue to be mauled by depressed premiums.”
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