CIAB Survey Shows Q1 Commercial P/C Easing

April 20, 2004

The Council of Insurance Agents & Brokers has issued a report indicating that the commercial property and casualty market “continued to ease across most lines during the first quarter of 2004, with the average premium increases for all sizes of accounts returning to the levels they were at the end of 1999, when the last soft market cycle was coming to an end.”

The survey showed that about 50 percent of small accounts, those generating less than $25,000 in commissions and fees, experienced no change in premiums or saw premiums drop during the quarter by 1-10 percent. An additional 41 percent of the small accounts had only slight premium increases in the 1-10 percent range.

The analysis showed the average premium increase for small accounts was about 3 percent. For medium accounts, ranging from $25,000 to $100,000 in commissions and fees, the picture was roughly the same. Forty-one percent of the accounts had no change or a drop of as much as 10 percent in premiums, while 9 percent of respondents reported a drop of 10-20 percent. Forty-two percent of the medium accounts had premium increases in the 1-10 percent range. The average rate of increase for medium accounts was 1 percent.

The CIAB survey found that large accounts had experienced the sharpest increases in premiums during the hard market conditions of the last two years, and they also experienced the greatest drop in premiums. The survey showed 45 percent of the large accounts holding steady or having premiums drop by 1-10 percent, while 12 percent dropped from 10-20 percent, and 4 percent dropped by 20-30 percent. On average, premiums for large accounts decreased by 3 percent.

“The survey still shows some trouble spots in the commercial market, where commercial coverage is hard to find and expensive when you can find it,” commented CIAB president Ken A. Crerar. “The biggest trouble areas remain residential construction risks, umbrella coverage, workers’ compensation and medical malpractice.”

“Pretty soon residential contractors will be joining the doctors to either protest their premiums or retire from the business,” observed one broker from the Northeast.

Perhaps the most ominous conclusion the study reached is its confirmation that, as has ever been the case, the hard/soft market cycle is still a fact of life for the industry. As rates soften in most lines, “brokers expressed concern that it is only a matter of time before insurers push aside the stricter underwriting standards of the last few years and start going after new business by premium-cutting. And if that happens, several said, the financial stability of carriers moves back to the top of a list of concerns.”

Return of insurer price competition was listed as the top concern of 40 percent of the brokers responding to the survey, and it was the second biggest concern of 41 percent more.

“Pricing has begun to go down on certain lines and types of accounts. We fear the insurers may get back into ‘stupid’ season,” said a broker from the Southwest.

“Softening pricing is a recipe for another awful cycle of insolvencies,” said a broker from the Pacific Northwest.

The survey also suggested there may be another looming environmental concern that is beginning to be excluded from renewal policies – silica. Silica, an element that can be found in quartz and sand, is the basic material used for most common communication-grade optical fibers. In crystalline form, it can cause a disabling and sometimes fatal lung disease.

Brokers from the Midwest and the Southeast mentioned in their responses to open-ended questions that carriers were excluding silica exposure. It was the first time silica has appeared in market index responses.

The CIAB said its latest quarterly market index reflects responses from the nation’s largest commercial insurance brokers who write 80 percent of the annual commercial p/c premiums and administer billions of dollars in employee benefits accounts. An analysis of those premium trends by Lehman Brothers Equity Research provided the average rate hikes for the various sizes of accounts as well as historical comparisons.

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