Council of Insurance Agents and Brokers’ Quarterly Commercial Property and Casualty Survey
Too much of a good thing! While consumers and Washington insiders clamored ever louder in 2009 for greater competition in the nation’s health insurance marketplace, competition and capacity were overly abundant in the commercial property/casualty sector. Couple these ingredients with what many foresee as a prolonged period of macroeconomic turmoil and the conditions are set for a prolonged soft market throughout 2010 and into 2011.
Ken A Crerar, President of The Council of Insurance Agents and Brokers (CIAB), echoed these sentiments in the CIAB fourth quarter Commercial P&C Market Index Survey when he stated, “tough competition for new business was the name of the game last quarter as carriers chased market share in a still weak economy”. Continuing, Mr. Crerar commented, “we don’t expect to see pricing turn upward until demand picks up and capacity diminishes”.
Simply maintaining premium volume appears to be the name of the game for many underwriting markets. Aggressive underwriting brought on by fierce competition has lead to, as one broker from the Midwest put it, “carriers [being] more amenable to providing terms and conditions they were reluctant to previously to try to maintain rate levels”. As such, inevitably risk selection and adequate pricing parameters continued to deteriorate over the fourth quarter.
Studying the charts and data illustrated below leads one to wonder when in fact a clearly identifiable shift in rates will occur. It is obvious that a soft market cannot last indefinitely but at this point even the glimmer of a change in market conditions undetectable.
As can be gleaned from the charts presented below, on average commercial property/casualty rates flattened or even ticked up through the latter half of 2008 and first part of 2009 only to retreat slightly by the end of 2009. As a whole, according to the CIAB survey, commercial rates on average declined a comparable 6% during the fourth quarter versus 5% and 6% declines posted for the second and third quarters of 2009, respectively.
The charts below have been compiled from CIAB survey data.
Figure 1 (click to enlarge)
Source: Council of Insurance Agents & Brokers' Quarterly Commercial Insurance Market Index
Figure 2 (click to enlarge)
Source: Council of Insurance Agents & Brokers' Quarterly Commercial Insurance Market Index
In search of market share and premium volume, standard underwriters continue to relax underwriting and expand their appetites into what has traditionally been E&S business. Rate increases foreshadowed at the start of 2009 have not materialized to date and, barring an unforeseen event, are not expected to become materially evident until at least the early part of 2011. Any increase in rates will more likely than not have to be predicated upon a change in overall macroeconomic conditions. It will take a marked increase in demand side pressure to curb the protracted soft market.
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