Marsh Inc. released its most recent benchmarking trends, indicating that property rates have begun to rise; the general liability insurance market remains soft, although the percentage of decrease at renewals is moderating; and workers' compensation insurance programs have renewed with an average decrease of 4 percent thus far in the third quarter.
Marsh indicated that July 2011 marked the end of 18 months of steady declines in median and average property renewal rates (catastrophe and non-catastrophe combined). A deceleration of rate decreases began in the fourth quarter of 2010 as insurers experienced considerable losses from a number of natural and man-made events. The trend continued after a number of natural disasters occurred worldwide in the first and second quarters of 2011, which resulted in significant insured losses, putting severe pressure on insurers’ profitability.
Additionally, following the Japan earthquake/tsunami in March 2011 and a rash of destructive tornadoes in the United States, insurers have pushed to increase rates—or at a minimum end decreases—especially on accounts with significant catastrophe exposures and/or poor loss histories. Preliminary median renewal rates thus far in the third quarter have increased 0.1 percent; the average rate increase was 1.1 percent.
General Liability Rate Monitor
Preliminary general liability premium renewal rates—reflective of both guaranteed cost and loss sensitive accounts—have decreased a median of 1.4 percent thus far in the third quarter. The decrease in median rates has been slowing since the third quarter of last year. Average rate decreases show a soft market environment for commercial general liability insurance, although the severity of decreases at renewal appears to be moderating.
Significant competition among insurers remains, meaning that for the remainder of the third and fourth quarters, insureds with favorable loss experience can likely expect rates to remain flat or decrease modestly at renewal. Clients with difficult loss histories are more likely to experience greater rate changes at renewal, in addition to potential changes to their underlying program structure.
Workers’ Compensation Rate Monitor
Preliminary workers’ compensation median premium rates (not seasonally adjusted) continued to decline through July. Both median and average rates have decreased 4 percent thus far in the third quarter. The rates are reflective of both guaranteed cost and loss sensitive accounts. While rates remain favorable to insureds, proposed workers’ compensation reform in many states may alter the landscape and impact the overall marketplace.
Although pricing remains fairly consistent, change may be coming as the market faces many challenges, especially in certain markets. Some states have recently enacted or are considering legislative reform. For the remainder of the year, companies renewing their workers’ compensation programs typically can expect rates to remain flat or to decrease slightly, depending on individual account specifics. Loss experience is a particularly important factor in how an individual insured’s program will be priced.
Directors and Officers Liability Insurance for Publicly Traded Companies Rate Monitor
Rates for directors and officers (D&O) insurance for publicly traded companies continue to decline. Renewal rates have dropped at a sustained pace since the fourth quarter 2009: Average reductions ranged from 4.6 percent and 7.9 percent for primary programs and 6.3 percent to 11 percent for total programs (primary and excess). The competitive market is likely to continue as capacity is abundant and competition is robust. Underwriters are closely analyzing risk and choosing when to compete.
Claims trends are being influenced by increasing litigation and costs related to derivative actions, merger and acquisition activity, and various regulatory and governmental initiatives. Securities class action claims are trending at a relatively stable pace. In the aggregate, underwriters are indicating that the current rate environment—coupled with current claims trends—puts pressure on the bottom line. Competitive market forces are expected to lead to rate decreases throughout 2011.
About Marsh Insights: Benchmarking Trends
Marsh Insights: Benchmarking Trends is a monthly newsletter covering purchasing behavior and pricing trends for four groups of coverages: property, casualty, financial and professional (FINPRO), and environmental. Each month we will highlight a key trend or dynamic piece of data for a select coverage and analyze its potential effect on the insurance marketplace. The real-time data for Benchmarking Trends comes from Marsh's Global Benchmarking Portal.