Survey: Commercial Market Softens, Insurer Appetite Increases

October 19, 2006

The commercial property/casualty market continued to soften during the third quarter, with indications that some insurers are finding an appetite for business in which they previously were not interested, according to the latest commercial market index survey by The Council of Insurance Agents & Brokers.

As has been the case the entire year, however, coastal property and catastrophe-prone risks remain costly and hard to place, brokers responding to the survey said.

Six out of 10 commercial insurance brokers and agents responding to the survey said their small accounts experienced decreases in renewal premiums during the third quarter, and three quarters of the brokers responding who handle large and medium-sized accounts reported that their customers had drops in premium rates. The majority of the decreases were in the 1-10 percent range for small, medium and large accounts, the brokers said.

An analysis of The Council’s survey results by Lehman Brothers showed that the average premium rates for all commercial accounts decreased 5.3 percent during the third quarter. The Lehman analysis showed the average small commercial account premium down 3.4 percent, the average medium account premium down 5.1 percent, and the average large account premium down 7.3 percent during the third quarter.

As premium prices fall and underwriters become hungry for new business, the agents and brokers said that insurers are starting to be more aggressive in pricing and more liberal in policy terms. Types of properties “normally considered unattractive” such as car dealers, restaurants, not-for-profit and habitational are being looked at with renewed interest, one respondent said.

“Underwriters are more liberal in what they will provide and what they will overlook,” said a broker from the Southeast. “They are finding ways to write accounts that were E&S [excess and surplus] 12-18 months ago.”

“Casualty lines are extremely soft. Standard lines companies are starting to write accounts that have been in the surplus lines marketplace. Rates/premiums are always open to downward negotiation,” agreed a broker from the Southwest.

“First signs of multi-year policies returning to certain lines,” reported a broker from the Northeast.

Meanwhile, it was another story altogether for coastal exposures, according to respondents, with wind, flood and property capacity still tight, deductibles and exclusions on the rise. Some carriers are expanding their definition of coastal property to business within 60-70 miles of the seacoast and categorizing areas such as the Chesapeake Bay as coastal.

“Further withdrawal of the market from ‘coastal’ areas – only difficulty being what the carriers actually define as coastal,” a broker from the Northeast said. “For some, it’s measured in feet, for some it’s measured in terms of miles, for others, well, we’re still trying to figure out how they’re measuring it!”

“By far the biggest issue is property located in SE coastal areas. A completely different pricing and underwriting approach from Midwest-based property risks,” said a Midwestern agent/broker.

Any catastrophe-prone property was likely to experience trouble securing coverage, the brokers and agents said, with premium levels at historic highs. Although the problems appeared to be the worst in Florida and along the Southeast coast, one respondent reported commercial earthquake rates up as high as 50 to 150 percent in Southern California.

“The absence of growing domestic capacity to address the need associated with long-term coastal growth issues presents a broader economic concern that our industry, in the wake of global climate change, will struggle to deal with,” one respondent observed.

For the full survey results, go to

The Council represents the domestic and international commercial insurance brokers and agents who annually write more than 80 percent of the commercial property/casualty premiums in the United States and administer billions of dollars in benefits accounts.

Source: The Council of Insurance Agents & Brokers.

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