Watson Wyatt: P/C Market to Remain Soft in 2008

November 16, 2007

The market for property and casualty insurance will stay soft in 2008, as premiums are expected to either decline or remain flat, according to actuarial and risk management experts at global consulting firm, Watson Wyatt Worldwide. Additionally, businesses may see enhancements in their coverages, particularly for directors and officers liability insurance, a trend that will continue.

“Rate decreases will be the rule for casualty insurance coverage next year,” said Orin Linden, property and casualty practice leader of Watson Wyatt’s insurance and financial services consulting group in New York. “Strong competition and healthy capacity are forcing insurance companies to lower their premiums or, at the very least, hold them stable. It’s clearly a buyer’s market.”

Rates for casualty insurance coverage may decline as much as 5 to 10 percent next year, and rates for property insurance coverage will be mostly flat, although some buyers may see a slight reduction. Rates have declined in each of the last few years for both property and casualty insurance coverage as the industry is going through a period of strong profitability, said Linden.

Other segments in the insurance industry — including workers’ compensation, directors and officers liability, and reinsurance — are also expected to experience soft market conditions, according to Steve Lawrence, a property and casualty senior consultant with Watson Wyatt.

Rates for workers’ compensation will be relatively stable as the market remains soft and companies continue to experience strong profitability. “We are expecting to see rates remain unchanged or perhaps decline as much as 5 percent,” said Lawrence.

Lawrence also noted a growing interest among insurers and risk managers in using predictive modeling software. In particular, insurers are applying the techniques they use for personal auto to workers’ compensation. This helps risk managers identify potential problems with workers’ compensation claims earlier in the process and allows them to implement a settlement strategy to reduce their cost. “Large companies with high volumes of workers’ compensation claims are especially drawn to predictive modeling,” said Lawrence.

“With the marketplace showing little sign of hardening, it may be an ideal time for buyers to review their risk management program structure and insurance policies,” Linden said. “This will help them decide if key program parameters should remain intact or if alternative risk management solutions, such as insurance captives, should be considered.”

“Buyers clearly get better terms in softening markets. However, they need to be well-positioned so that when the market firms up, they have a plan to move forward.”

Linden and Lawrence also suggested that buyers who are considering switching carriers should analyze the carrier’s long-term credit rating, since many claims may not be paid out for another six to 10 years.

Source: Watson Wyatt Worldwide,

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