Recession Keeps Commercial Insurance Premiums under Pressure
July 2009
Despite poor financial results, insurance
companies continued to compete vigorously for business in the second
quarter, according to RIMS Benchmark Survey™, the industry's leading survey
of policy renewal prices as reported by North American corporate risk
managers.
by
Advisen Ltd.
General liability and workers compensation policies both posted average
decreases in renewal premiums. Directors and officers liability (D&O)
policies renewed at higher premiums on average, but the increase was due to
financial sector companies, a segment that has been bloodied by the subprime
mortgage meltdown and credit crisis. Property policies renewed at
essentially no change.
Workers compensation recorded a 2.8 percent average decrease in renewal
premiums, as compared to a 1.7 percent drop in the second quarter of 2008,
and general liability posted a 1.1 percent drop as compared to nearly a 5
percent decline a year ago. D&O increased 2.9 percent, a reversal of the 6.4
percent average decrease in the second quarter of 2008. However, excluding
financial services companies, D&O policies renewed with a 4.1 percent
average decrease. Property premiums fell less than 1 percent, which compares
to a 6.1 percent drop in the second quarter of 2008.
Click here for Average Change in
Renewal Premium: 2nd Quarter 2009 versus 2008.
Rates continue to drift downward despite the
loss of $81 billion in policyholders’ surplus in 2008 and the first quarter
of 2009, according to the Insurance Information Institute. Deteriorating
investment markets was the principal cause of falling surplus.
Policyholders’ surplus is a measure of insurance capacity, meaning that, as
surplus falls, the "supply" of insurance also decreases.
"Insurance capacity
is disappearing at a startling rate, but the market nonetheless remains
competitive," says Dave Bradford, executive vice president of Advisen Ltd.
and editor-in-chief of RIMS Benchmark Survey™. "As a result of the
recession, the demand for insurance capacity also has decreased, which has
kept pressure on rates. Companies are downsizing, which means that there is
simply less to insure."
Falling demand has prolonged the soft market, but
leading indicators tracked by Advisen Ltd.—most specifically the ratio of
policyholders’ surplus to U.S. Gross Domestic Product, which measures the
supply of insurance capacity relative to the demand for that
capacity—suggest that the market is close to its bottom.
"If the gloom of
the global recession has a silver lining for risk managers, it is the
competitive insurance market," says Daniel H. Kugler, ARM, CEBS, CPCU, AIC,
ACI, member of RIMS board of directors and assistant treasurer, risk
management, at Snap-on, Inc. "The soft market appears to be winding down,
but except for increases already taking place in some financial segments,
there are no strong signals that rates will rebound sharply in the near
future."
About The RIMS Benchmark Survey™
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. Risk
managers and buyers of insurance either contribute directly to RIMS
Benchmark Survey™ or by using our "data participation letter" to authorize
their broker to provide the client's program details. The letter is
available
online or by calling (800) 655-6590.
Risk management professionals can
also contribute by e-mailing current and prior year policy schedules to
or by faxing
(212) 655-7453.
Risk managers who contribute data to the survey can
benchmark the structure of their commercial insurance programs, retained
loss costs, exposure demographics and Total Cost of Risk (TCOR) against a
highly-relevant group of peer companies. Additionally, survey respondents
can use software personalized and configured for their needs to view
detailed schedules of insurance, programs for current and past years, and
full-color program tower charts. Both benchmark charts and program charts
can be downloaded into any presentation for senior management. The results
of the RIMS Benchmark Survey™ are available
online or in an annually published book.
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