Commercial Insurance Market Index Released
October 2002
This article discusses the hard market in
real distress.
by The Council of Insurance
Agents & Brokers
Washington, D.C.
Third quarter data show concerns over economy and industry
solvency
Top commercial insurance brokers, noting insurers have been buffeted by terrorist
attacks, stock market woes and increasing environmental hazard claims, have
cast their eyes ahead to the coming year and voiced concern that if economic
conditions do not improve, the industry's financial viability could be in jeopardy.
In data released today in the third quarter 2002 Commercial Insurance Market
Index survey of The Council of Insurance Agents & Brokers' members—all among
the top one percent of the nation's largest brokers—86 percent of respondents
have concerns about carrier solvency.
In addition, The Council's quarterly Market Index showed premium prices across
all lines of commercial business continued to march upward for the period ending
Sept. 30, 2002. Respondent broker—all among the sector writing 80 percent of
commercial property/casualty coverage—showed more than 60 percent of medium-sized
and large accounts continued to experience price increases from 20 to 50 percent.
Respondents said half their small accounts saw premiums rise 10 to 20 percent,
and 20 percent more went up between 20 and 30 percent. The increases are consistent
with previous "hard market" findings.
This quarter's Index survey repeats the familiar post-9/11 story of higher
rates, tougher terms and conditions and lower capacity," said Ken A. Crerar,
The Council's president. "But solvency concerns emerge as troubling new twist.
Large brokers are concerned state regulators and other solvency watchdogs do
not confront solvency issues quickly enough to rehabilitate troubled carriers
or get them out of the market. Yet, absent a federal solution, those are the
only sources we currently have to assess carrier solvency.
Responding to an open-ended question on emerging issues, brokers cited the
economy's continuing weakness and worrisome post 9/11 carrier rating declines
as the reason for growing solvency concerns.
"We are seeing downgrades almost on a weekly basis," reported one broker.
"Very concerned," said another.
"We figure one (insolvency) is just around the corner," an agent volunteered.
Asked to look ahead to trends that will impact commercial insurance pricing
and availability in the coming year, one respondent ticked off five: "Economy,
additional terrorist activity, war, asbestos, mold."
"Stock market and insolvencies will continue to hamper balance sheets. Should
prolong the hard market," said another.
Although some brokers said the pending agreement on a terrorism backstop
bill on Capitol Hill will help to stabilize the market, the survey showed continued
worry about the fallout from a weak economy and an unstable stock market.
"Stocks are off and bond yields are down, requiring underwriting profits
to make up for lost investment income; this should continue the upward pressure
on prices. Medical costs continue to rise," said another.
"Financial state will affect bankruptcies of both companies and insureds,"
one agent predicted.
One respondent said he was worried that a sudden influx of the cash from
a year-plus of higher premiums would result in carriers "deluding themselves
into thinking their underwriting position has improved and the glitter of market
share is once again more important than the fundamentals of sound underwriting."
But another broker said he was far more concerned that market pressures are
taking their toll on historically good relationships between customers and insurers.
"Clients are learning to live with less coverage," this agent replied. "More
importantly, claim service is deteriorating—professional competence, staffing,
response times, length of time to make payment, are all declining, and clients
are becoming mistrustful of insurers and suspicious of their intent. Previously
positive relationships are deteriorating rapidly."
In terms of premium increases in the third quarter, not a single line of
commercial insurance was spared higher rates, with the bulk of the price increases
in the 10 to 30 percent range. Brokers reported that 20 percent of construction
risks, 18 percent of the director's and officer's accounts, and 27 percent of
umbrella policies had increased 30 to 50 percent. In addition, medical malpractice
coverage was significantly higher, with 18 percent of account premiums up from
30 to 50 percent; 12 percent of accounts up 50 to 100 percent; and 19 percent
of the accounts up 100 percent.
The survey also showed that brokers and agents are turning more frequently
to alternative markets to place risky or difficult accounts, with surplus lines
and captives the most common choices.
And customers are dealing with higher premiums by dramatically altering their
insurance choices. Higher deductibles are employed almost across-the-board,
brokers reported, while 59 percent said their customers were self-insuring a
portion of their risks. Of the respondents, 51 percent said some clients had
foregone insurance totally and were "going bare" for risks previously managed
with commercial insurance coverages.
"It's important for the industry to focus on the very real financial challenges
ahead. Solvency is a top priority—and one the industry and regulators must take
very seriously. The purpose of regulation is to protect consumers. That cannot
be done without a coordinated early warning system. As throughout the 90-year
history of this association, our members lack full confidence the existing regulatory
system works," Crerar said.
Commercial Property—Casualty Market Survey
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, D.C.—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. website: www.ciab.com.
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