Posted on 19 Feb 2009
Despite a multitude of challenges posed by the deepening global economic crisis, the impact of financial marketplace conditions on certain insurers, and significant property catastrophe losses, the U.S. commercial insurance marketplace proved resilient in 2008, remaining stable — albeit somewhat less competitive — across nearly all lines of coverage. Yet, worsening loss experience and rising carrier combined ratios began affecting market conditions in some lines at year-end and these trends are continuing into 2009.
A new report from Marsh Inc., the world’s leading insurance broker and risk advisor, finds signs of a hardening U.S. commercial property/casualty insurance market. However, the report concludes that the insurance cycle may evolve differently than any hard market over the last 50 years due to unknowns surrounding the length and depth of the recession and the potential for occurrence of a major insured catastrophe.
Marsh's 137-page Insurance Market Report 2009 is based on more than 36,000 commercial insurance policy renewals during the fourth quarter of 2008 by 6,700 commercial insurance buyers. The report examines trends and key developments affecting pricing, terms, and conditions in all major commercial lines of coverage, as well as in 14 specific industry sectors.
In the current market environment, Marsh is advising businesses purchasing insurance to stay abreast of market conditions and consider the following measures:
* Monitor insurer financials, including related ratings agency decisions, and be prepared to re-balance your insurance portfolio if appropriate.
* Build strong relationships with key insurers so any adverse impact is limited if and when they tighten their underwriting guidelines.
* Continue to build strong loss control programs with respect to physical protection and operational and contractual standards. These initiatives may enable firms to increase retentions when they need to do so or when premium credits are important.
* Build preventive measures that can help strengthen a firm's resilience in a hard market.
Among specific coverage lines, Marsh reported that commercial property insurance rates generally flattened in 2008, accelerating a shift away from the soft market conditions of the prior two years. In 2009, businesses with little to no natural catastrophe-related exposures — including those unaffected by recent storms and other catastrophic events — may continue to see more favorable market conditions, according to Marsh.
The firm also reported that standalone property terrorism insurance rates remained competitive in 2008. According to Marsh’s report, in some instances, these broader policies saw more aggressive pricing than more restrictive terrorism coverage embedded in property programs, particularly for businesses with significant natural catastrophe exposures or locations in central business districts.
With respect to other major commercial insurance lines, Marsh reported the following:
* Primary casualty insurance (includes workers' compensation, automobile liability, and general liability). Conditions began changing in 2008, with many firms experiencing flat renewals or smaller rate decreases than in prior years. Marsh expects these conditions to prevail through the first half of 2009, with more businesses beginning to see single-digit increases on program renewals in the second half of the year.
* Directors and officers (D&O) liability insurance. While D&O insurance generally remained competitive in 2008 for firms without significant claims, major acquisitions, or regulatory investigations, the market for financial institutions and real estate companies with subprime exposures and related litigation tightened in 2008 and is expected to continue. In 2009, firms likely will see some combination of higher premiums, more restrictive terms, lower limits, higher deductibles, and in some cases, non-renewal of participation by certain insurers.
* Employment practices liability insurance (EPLI). Rates continued to soften in 2008, but at a slower pace as the year progressed. The increase in corporate layoffs resulting from the weak economy raises the likelihood of EPLI claims and could adversely affect rates in 2009.
* Political risk insurance. While insurers watch for trends that might signal increased civil unrest and government intervention, the insurance market's expansion over several years has enabled carriers to respond to increased demand, albeit with greater underwriting scrutiny and flat to increased pricing, depending on the product and country of risk.
* Surety. Despite four years of strong financial results, sureties are focusing on avoiding losses they anticipate will accompany the global economic recession. Although rates are stable and the outlook is for flat or modest increases, the availability of adequate surety capacity is the primary issue for businesses to meet statutory or contractual security requirements.
* Trade Credit Insurance. As the economic crisis spread throughout the globe, the trade credit insurance market changed dramatically in the second half of 2008. Insurance buyers that experienced significant decreases in rates the prior year faced increases of 10% - 30% on average.
Marsh has 24,000 employees and provides advice and transactional capabilities to clients in over 100 countries. Marsh is a unit of Marsh & McLennan Companies, Inc. (MMC), a global professional services firm with more than 54,000 employees and annual revenue exceeding $11 billion.