Fourth Quarter 2002 CIAB Market Survey: Premiums Still on the Rise
January 2003
The Council of Insurance Agents & Brokers
has released their fourth quarter data which shows that commercial property/casualty
insurance premiums continue to march upward.
by The Council of Insurance
Agents & Brokers
Washington, D.C.
More than two-thirds of the small and medium-sized commercial property/casualty
accounts and 59 percent of the large accounts experienced premium increases
between 10 and 30 percent during the last three months of 2002, according to
a survey of the nation’s leading insurance brokers.
The fourth quarter 2002 commercial market index released today by The Council
of Insurance Agents & Brokers shows that the commercial property/casualty insurance
premiums, although moderating somewhat compared with earlier survey results,
were continuing to march upward. The survey is based on responses from Council
members, the nation’s largest insurance brokers who annually write $8 of every
$10 in premiums for commercial insurance sold in the United States.
Forty-nine percent of the small accounts have experienced rate increases
of 10-20 percent in the last 3 months, while an additional 18 percent had premium
increases of 20-30 percent. For medium accounts, 38 percent reported premium
rates were up 10-20 percent, and 32 percent increased 20-30 percent. Thirty
percent of the large accounts had premium hikes of 10-20 percent, and 29 percent
saw premiums increase 20-30 percent in the fourth quarter of 2002.
An additional 18 percent of small accounts and 11 percent of both medium
and large accounts experienced premium increases of 10 percent or less.
Only 9 percent of small accounts, 7 percent of medium-sized accounts, and
4 percent of the large accounts reported that their premiums did not change
in the 3 months since October 1, 2002, the survey showed.
The premium increases were reflected across all lines of commercial insurance,
although even larger increases—in the 30-50 percent range—were more common for
commercial property (18 percent of the accounts); construction risks (23 percent);
directors and officers coverage (18 percent); and umbrella policies (26 percent).
"We are well into our second year of hard-market conditions, and a substantial
part of the commercial market continues to watch premiums increase across the
board. There is little indication that the market is softening in any significant
way for any line of business or for any size of account," said Ken A. Crerar,
president of The Council.
The brokers said buyers are still relying on higher deductibles, self-insurance,
or going without insurance as a defense against high rates. Brokers also said
they are struggling with eleventh-hour quotes from many carriers, which make
comparative shopping difficult.
Another sign that hard pricing is continuing is the ongoing flow of business
into the alternative markets. Nearly three-fourths (74 percent) of the survey
respondents said they are using more alternative markets than they were 3 months
ago, with the vast majority of that business going to surplus lines.
Ninety-six percent of the respondents said they were using surplus lines
to place insurance that the primary carriers won't write. The surplus lines
market is generally considered the market of last resort.
Captives also are being used by 24 percent of the brokers, and 19 percent
said they were using risk retention groups.
"Clearly, there is a move to alternative markets for both pricing and term
issues," Crerar said. "Such a large migration to surplus lines means there
is a great deal of business that is not being written by primary insurers."
In response to the open-ended questions on market trends, one broker from
the Midwest observed: "Carriers have little initiative to write anything. If
the risk is perfect and really needs no insurance, they'll quote it."
"Most standard carriers have greatly reduced the number of business classes
they will write," agreed a broker from the Southeast. "Many carriers are now
more interested in writing mono-line (the cream only) rather than the entire
account. Much tighter underwriting for new business and re-underwriting
renewals."
Another emerging trend is the general concern over the industry’s financial
health. Ninety-seven percent of those responding to the survey said they were
more concerned about carrier insolvency today than a year ago.
The survey also indicates uncertainty in the terrorism insurance market,
despite passage of a new law providing a federal backstop for terrorism coverage
more than 2 months ago. Nearly half of the brokers responding (47 percent) did
not answer the question asking how terrorism rates have changed over the last
three months. In comments, many said insurers have been slow to respond with
rate quotes and in some cases simply were not renewing policies.
"It's apparent that many insurers have still not developed a pricing strategy
for the terrorism product," said Crerar. "We hope that with a few more
months of experience, clearer pricing and market trends will begin to emerge
for terrorism coverage."
Commercial Property—Casualty Market Survey
4th Quarter 2002 Released:January 2003
Total Responses: 118 (Represents independent insurance agents + brokers across
the United States). Below are the survey results for: All Regions of the United
States.
- On average, how have premium rates changed over
the last 3 months (since Oct. 1 renewals) for the following accounts. Please
check N/A if you don’t know or don’t handle the type of account.
Table
1
- How much have premium rates changed over the
last 3 months (since Oct 1 renewals), for the following lines? Please check
N/A if you don’t know or don’t handle the line.
Table
2
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. website: www.ciab.com.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.