Fourth Quarter Survey Shows Significant Softening in Commercial P/C Market
January 2005
More than 80 percent of small and large commercial
property/casualty accounts and 90 percent of medium accounts found their insurance
premiums either stable or down by as much as 20 percent during the fourth quarter
of 2004, according to survey data released by The Council of Insurance Agents
& Brokers.
by The Council of Insurance
Agents & Brokers
Washington, D.C.
The Council represents the top tier of commercial insurance brokers who write
more than 80 percent of all commercial property/casualty premiums and administer
billions of dollars of employee benefit accounts annually. The Council's quarterly
Commercial Market Index Survey showed a significant softening in pricing during
the period between October 1 and December 31, 2004.
The survey showed that 30 percent of small accounts experienced no change
in premium rates, while 42 percent had premiums down 1–10 percent, and 12 percent
dropped 10–20 percent. The average small account premium declined by 4 percent.
Although 12 percent of medium accounts reported no change in premiums, the
vast majority experienced a modest downtick. More than half of the medium accounts
(53 percent) experienced declines in premiums of 1–10 percent, with 25 percent
more down 10–20 percent. The average medium account premium declined by 7 percent.
Large accounts also were paying significantly less for their insurance coverage.
Only 4 percent experienced no change in premium rates, but 44 percent of the
large accounts were down 1–10 percent. An additional 34 percent were down 10–20
percent, and 6 percent were down 20–30 percent. The average large account premium
was down by 10 percent during the fourth quarter.
The same trends in premiums were apparent in virtually all commercial lines,
but commercial property premiums dropped the most. Broker errors and omissions
policies, commercial auto rates, workers compensation, and construction risks
were the lines most likely to experience premium increases, although most hikes
were modest, in the 1–10 percent range.
In answers to open-ended questions about market conditions, brokers said
insurance companies are more aggressive in seeking out new business although
they seem to be trying to hold the line on renewals. There were some reports
of relaxed underwriting, but the trend was not widespread.
Meanwhile, several brokers from around the country signaled a potential problem
looming for residential construction coverage. Brokers from all regions reported
they are having difficulty finding insurance companies willing to write policies
for residential construction risks.
"Carriers continue to retreat from residential construction exposures. This
looks like a crisis in the making," said one broker.
"Construction risks continue to be difficult if the account is a general
contractor or larger residential contractor," agreed a broker from the Northeast.
The problem relates to construction defects in neighborhood developments
or high-rise condos where a number of residents can band together and bring
a class-action suit against the contractor, the developer, or both, one broker
from the Southeast said.
"It's been brewing for 8 to 10 years, but it has been of great concern for
the last 3 years in our area," he said. "I basically have one large general
contractor left in my book of business, and he is being nonrenewed this year."
The average rate increases based on Council survey data were calculated by
Lehman Brothers.
Commercial Property—Casualty Market Survey
Fourth Quarter 2004 Released: January 2005
Below are the survey results for: ALL REGIONS
NUMBER OF RESPONSES: 140
1. On average, how have premium rates changed over the last three months
for the following accounts? Please check N/A if you don't know or don't handle
the type of account.
Table 1
2. How much have premium rates changed over the last 3 months for the following
lines? Please check N/A if you don't know or don't handle the line.
Table 2
Average
Commercial Premium Rate Changes by Account Size
Insurance
Rate Changes, Small Commercial Accounts*
Insurance
Rate Changes, Medium Commercial Accounts*
Insurance
Rate Changes, Large Commercial Accounts*
Average
Premium Rate Changes by Line
Commercial
Auto Insurance Rate Changes
Workers'
Compensation Insurance Rate Changes
Commercial
Property Insurance Rate Changes
Commercial
General Liability Insurance Rate Changes
Umbrella
Insurance Rate Changes
Business
Interruption Insurance Rate Changes
Average
Rate Declined 7.0% in 4Q04
By-Line
4Q04 Rate Changes
4Q04
Rate Changes in Other Lines
The Council of Insurance Agents &
Brokers is the voice of the market leaders and the premier association
for commercial insurance and employee benefits intermediaries in the United
States and abroad. From its headquarters in Washington, DC – with programs conducted
throughout the nation and world – The Council represents the largest, most productive,
and most profitable of all commercial insurance agencies and brokerage firms.
Only the top one percent of all agents and brokers qualify. The Council's members
in more than 3,000 locations, place 80 percent—well over $90 billion—of all
U.S. insurance products and services protecting business, industry, government
and the public at-large, and they administer billions of dollars in employee
benefits. Since 1913, The Council of Insurance Agents & Brokers has worked in
the best interests of its members, securing innovative solutions and creating
new market opportunities at home and abroad. Web site: www.ciab.com.
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