Soft commercial insurance market conditions persisted through the third quarter of 2010, with lower rates on average across major coverage lines, according to a new report published today by Marsh.
Intense competition and overabundance of capacity continue to define the commercial insurance market, which is likely to remain stable into 2011 barring an unforeseen market-changing event, Marsh said in its report, U.S. Insurance Market Report 2010, Third Quarter Update: Insureds Net Benefits as Downward Rate Pressures Persist. Based on data compiled from Marsh accounts renewing in the third quarter, the report found that:
• Property rates declined an average of 6.1 percent;
• General liability rates declined an average of 6.7 percent;
• Workers’ compensation rates declined an average of 5.3 percent;
• Auto liability rates declined an average of 0.1 percent; and
• Directors & officers liability (D&O) rates declined an average of 8.7 percent.
"Commercial insureds continue to experience favorable market conditions as competition among insurers remains high and capacity plentiful," said Joe McSweeny, President, United States & Canada Division, Marsh. "A surplus of capacity, continued profits for insurers, and a stable litigation environment should lead to continued stability in the fourth quarter of 2010 and into 2011."
Marsh's report found that despite an estimated $18 billion in worldwide insured catastrophe (CAT) losses in the first two quarters of 2010, property rates for domestic and global businesses purchasing insurance in the U.S. typically declined five to 10 percent in the third quarter. Barring some unforeseen event, the property market’s abundance of capacity will likely impel insurers to further decrease rates into 2011 in order to maintain market share.
Similarly, primary casualty—comprised of workers’ compensation, general liability, and automobile liability—remains largely a "buyer's market," with rates trending downward on average across all lines of business through the third quarter. Collateral continues to be an important negotiation point with primary liability carriers and often overshadows rate discussions during renewals. Insureds with a concentration of collateral with one carrier, or with specific collateral issues or needs, may have difficulty finding alternative solutions.
Rate trends for lead umbrella generally were similar to those experienced in the primary market, while excess liability rates showed moderate decreases on average, based on the class of business and competition levels.
The primary and excess D&O market remains extremely competitive, with premium reductions continuing to be realized in the first three quarters of 2010 for companies with favorable risk profiles. Rate changes for individual companies varied significantly depending on several factors, including market capitalization, industry, liquidity and loss experience.
One area of interest to D&O underwriters is the potential impact of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. While the full impact of the legislation will not be known for some time, Section 922 of the Act provides new incentives to whistleblowers, including substantial "bounties" in proceedings where the Securities and Exchange Commission (SEC) collects more than $1 million in fines or penalties. These new provisions could lead to a wave of employee whistle blowing that could result in significant regulatory activity and follow-on civil litigation.
Marsh's third quarter update is based on data from Marsh's Global Benchmarking Portal and reflects transactions brokered by Marsh through the end of the third quarter. The report provides Marsh clients with the most recent and relevant data available in the insurance brokerage industry to make informed risk financing and budgeting decisions.
"No one can predict with certainty whether premium rates and terms of coverage will harden, soften, or stay the same in a given time frame," said Mr. McSweeny. "But savvy risk and insurance professionals need to have visibility into the insurance markets, which play such an integral part in overall risk management planning and budgeting."Read or download Marsh's U.S. Insurance Market Report 2010, Third Quarter Update.
Read or download Marsh's U.S. Insurance Market Report 2010, Third Quarter Update.