Survey: Market Index Shows Continued Softening for Commercial P/C Market

The commercial property/casualty insurance market showed signs of continued softening in the second quarter of 2004, with one-third of the small accounts and more than half the medium and large accounts experiencing significant premium decreases.

The latest commercial market index, conducted by The Council of Insurance Agents & Brokers (CIAB), showed 36 percent of small accounts, 57 percent of medium accounts and 53 percent of large accounts experienced premium rate decreases ranging from a slight decrease to a drop of as much as 20 percent during the last quarter. Brokers from across the country said most of their commercial accounts held steady or experienced premium decreases during the period.

For the small number of commercial clients whose premiums increased, the hike was usually in the 1 percent to 10 percent range.

The CIAB’s survey data showed the average small commercial account experienced about a 1 percent premium decline. For medium commercial accounts, the average premium declined by 3 percent, and for large accounts, the premium decrease averaged 6 percent.

The CIAB represents the nation’s largest commercial insurance brokers who collectively write 80 percent of all property/casualty premiums and administer billions of dollars in employee benefits accounts each year.

“Terms and conditions are still tight, but we are seeing accelerated decreases in premium rates and a return of competition to the market,” said Ken A. Crerar, president of CIAB. “The questions now are how far and how fast will those rates come down. There are some mitigating factors such as reserve levels and the overall economic recovery that could serve as brakes on the market.”

Brokers responding to the survey said even the most difficult-to-place lines of commercial business – directors and officers insurance, general liability, umbrella, commercial auto, employment practices and workers’ compensation – seemed to be stabilizing, with more than 50 percent of accounts experiencing no change or increases of 1 percent to 10 percent in premium rates between April and June. Some brokers reported premium decreases for those lines.

Construction risks also appeared to be stabilizing, but to a lesser extent than the other troublesome lines.

The brokers responding to the survey said a return of price competition remained their biggest market concern, with nearly 90 percent of the respondents saying the developments of the past quarter have renewed or bolstered their concerns about carrier solvency.

“Starting to give away the store!” observed a broker from the Northeast.

“The market share demon is being let loose again,” agreed a broker from the Southwest.

One Midwestern broker said he had two major carriers come in with quotes that were 40 percent less than what one retail furniture business had been paying. The insurer seeking to renew the account initially was willing to reduce premiums only by 14.5 percent, but agreed to the 40 percent drop to meet the competition and keep the account.

Interestingly, the broker said, it was the first time in the last two years that any other carrier had been willing to quote competitively on that account.

“I would say the soft market has returned,” he said.

Other market concerns cited by the brokers in the latest market index were economic conditions, the need for tort reform and the loss of competitors due to market consolidation.