RIMS Survey Reveals Drop in Insurance Rates
October 2005
RIMS benchmark survey shows sharp downturn
in commercial insurance rates, but the impact of Hurricanes Katrina and Rita
still looms. Three major lines are down over 5 percent; carrier financials may
be affecting pricing, but the hurricanes are already increasing rates for some
renewals.
by Advisen Ltd.
Commercial insurance premiums took a sharp downward turn in the third quarter,
according to the RIMS Benchmark Survey, the industry’s only comprehensive survey
of current policy renewal prices as reported by corporate risk managers.
But some risk managers also said most insurance program renewals had yet
to weather the effect of Hurricanes Katrina and Rita and property programs were
now experiencing as much as a 20 percent rate increase. The bulk of renewals
in the survey had secured pricing before the impact of the hurricanes hit the
market.
Survey results showed renewal premiums down on average over 5 percent against
the same quarter last year. Directors and officers liability experienced the
steepest decline, falling 8.45 percent. Property premiums fell just under 6
percent and general liability was down 5.2 percent. Workers compensation was
the only major line that was down less than 5 percent; that line was down 3.75
percent.
The RIMS Benchmark Survey is produced by Advisen, Ltd., which collects and
analyzes the data and provides the technology infrastructure for the survey’s
online services.
Prices Dropping as Soft Market Marches On
Advisen editors who manage the survey pointed to carrier financial performance
as a catalyst for dropping prices. The property & casualty industry experienced
record profits in the first half of 2005, leading underwriters to drive down
renewal rates in a competitive scramble for increased revenue. But the continued
soft market has yet to feel the impact of the devastating hurricanes that hit
the Gulf region of the United States in August and September.
"There is increased competition as carriers all vie for renewals in this
profitable market. The natural market reaction is to drive down prices," said
Karen Beier, member, RIMS Board of Directors, Membership and Chapter Services
portfolio. "But the devastation of Katrina and Rita is only now beginning to
translate into higher renewal prices. The whole picture could change dramatically
in the coming quarters."
Advisen conducted a secondary set of interviews with about 30 companies who
had renewed programs on or after October 1 and asked if the hurricanes had any
substantive effect on pricing. Most risk managers responded that they had already
received indications of pricing by the time Katrina hit the southern United
States and those quotations were honored. But some managers who had either not
yet received quotations or whose verbal quotations were not honored said they
experienced increases as high as 20 percent over the prices they had anticipated
or had been originally quoted for their property insurance programs.
"Risk managers who saw their renewal prices drop said they felt lucky, because
those who experienced the hurricane effect are now explaining to their management
why renewal premiums just went through the roof," said David Bradford, editor-in-chief
at Advisen. "The real question is whether Katrina and Rita will have a lasting
effect and strengthen the market for a time—potentially in all lines of business,
not just property—or whether this is a short-term blip in what has proved to
be a pretty resolute soft market."
About the Benchmark Survey
Risk managers who contribute insurance schedule data to the survey can benchmark
both the structure of their commercial insurance programs and the cost of insuring
their risk against a highly-relevant group of similar companies. Additionally,
survey respondents can use customized software to view detailed schedules of
insurance programs for current and past years and to create full-color charts.
Both benchmark charts and program charts download into any presentation for
senior management.
The results of the RIMS Benchmark Survey are available online, published
continuously throughout the year, and in a book, published once each year, Visit www.advisen.com/ for details.
Risk management professionals can contribute their data by e-mailing current
and prior year policy schedules to Benchmark@RIMS.org.
Data can also be sent by fax to Advisen at 212-655-7453. Advisen will input
the data, making it available for online review and comparison within days.
Participant support is available by calling 1-800-655-6590.
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