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CIAB: Soft Market Persists in Q3, Fueled by Strong Competition, Sufficient Capacity

Source: CIAB

Posted on 21 Oct 2010

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The soft market continued unabated in the third quarter, fueled by strong competition and sufficient capacity, according to The Council of Insurance Agents & Brokers’ third quarter Commercial P/C Market Index Survey. Renewal rates on average declined by 5.2 percent in the third quarter, compared with a 6.4 percent decrease in the second quarter -- a slight slowing in the rate of decrease in pricing from quarter to quarter

“Market conditions haven’t changed much since last quarter. Carriers are still willing to compete on terms, conditions and price,” said Council President Ken A. Crerar. “Barring any unforeseen events, there is nothing on the immediate horizon that suggests a dramatic change in the market’s direction.”

The Council has been tracking commercial property/casualty rates since 1999. The survey represents a cross-section of commercial insurance brokers across the country.

Commercial renewal pricing for small, medium and large business accounts continued to decline at a slightly slower rate than in the second quarter.

Large account rates fell by 6.6 percent -- 1 percentage point more than mid-size accounts at 5.5 percent and 2 points more than small accounts, which fell 3.6 percent. Pricing for all account sizes was soft, according to The Council’s survey data. All individual commercial lines included in the survey experienced rate decreases.

Brokers in all regions of the country reported that competition among insurers continues to be intense, particularly for new business. “Insurers are willing to reduce premiums significantly,” according to a Northeastern-based broker.

Brokers in the Midwest reported similar market conditions. “[Carriers are] still aggressively underwriting new business,” said one broker. ”New business underwriters remain much more aggressive than renewal carriers with regard to rates, coverages, and flexibility in program design.”

The same held true in the Southeast. “We see no evidence of any tightening in any area. No one wants to lose any market share regardless of prudence.”

Many brokers said there were no significant changes since last quarter. Others noted loosening of terms and conditions. According to one respondent, carriers are providing “broader coverages and lower retentions.” Another commented that “the market is looser and terms are better.” Still another said, “Soft market conditions reign – lower deductibles, broader terms, lower prices.”

There were a few exceptions to the rule. Brokers reported a slight hardening in workers’ compensation in some states; in coastal property exposed to wind damage; and in the Southeast where recent flooding occurred.

The survey also revealed a slight up-tick in demand for insurance in the third quarter. Whether this change was a result of a slowly growing economy or buyers taking advantage of low pricing to get more bang for their buck, isn’t clear. Thirty-four percent of the brokers said the demand for insurance rose in the third quarter, compared with 26 percent in the last quarter.

The economy and health insurance reform remain brokers’ top concerns.