Modest decreases in premium rates but economic crisis puts pressure on insurers to raise rates, finds RIMS survey

See also: 2009 has challenges ahead

A reversal of the five year trend of softening commercial insurance rates could soon be underway, finds new research.

Rates for property, general liability, and directors’ and officers’ (D&O) insurance premiums all decreased at a materially slower pace than in recent quarters, according to a RIMS benchmark survey.

The data corroborates recent forecasts that the commercial insurance premium market cycle is close to its bottom.

Commercial insurance prices should begin increasing by the fourth quarter of 2009 or the first quarter of 2010, according to Advisen analysts.

The average general liability premium fell more than any other line at 5.9 % in the fourth quarter, but this decrease is modest when compared to the 9.6 % decline in the third quarter. Property premiums were off by 3.8 %, modest when compared to the 8.5 decline in the third quarter. Workers’ compensation continues to reflect little volatility with a 0.8 % decrease in the fourth quarter, consistent with a two-year trend.

D&O continued to increase for financial institutions but continued to fall in other sectors. D&O rates fell 1.2 % in the fourth quarter, down from 2.1 % in the third quarter. Excluding financial institution buyers of insurance, the fall in premiums was 4.5 % in the fourth quarter, as compared with 7.5 % in the third quarter.

‘We may not see continued price reductions for long,’ said Daniel Kugler, member of RIMS board of directors and assistant treasurer, risk management at Snap-on, Inc. ‘The most recent data show that the soft market isn’t over yet, but it may be losing steam.’

‘Overcapacity has driven a long soft market and the events of this past quarter may portend a market shift for commercial insurance,’ says Dave Bradford, executive vice president at Advisen.

‘In addition to much higher than average catastrophe loses in 2008, insurance companies are facing claims from the subprime meltdown, global credit crisis and now even from the Madoff scandal. Reserves for these claims and material losses in investment income have led to negative earnings and new capital is scarce,’ he continued.