9% P&C Sector Jan. Rate Decline Follows Prior Months

National Underwriter News
February 5, 2009

Property-casualty insurance rates for January declined 9 percent, the same level seen in the prior two months, the MarketScout electronic insurance exchange reported today.

Richard Kerr, chief executive officer of Dallas-based MarketScout said the composite rate index level seen in the firm's latest price barometer signals the end of market price declines.

He noted that "Insurance executives are forecasting and closely monitoring the prospects for much needed rate increases in 2009."

However, Mr. Kerr said the economy presents a daunting challenge and the health of the U.S. and world economy is playing a large role in the fortunes of insurance companies and brokers.

He noted that, "Lower payrolls and receipts are resulting in lower premiums and severe pressure on expense rates. Insurers and brokers are faced with diminished premium bases before they even consider the terms of renewal or rates."

Mr. Kerr said that if a firm's exposure base is down 20 percent and it renews 90 percent of its customers it only captures a true premium renewal rate of 72 percent.

"The resulting lower retention puts incredible pressure on new business initiatives in order to maintain premium volume, all while insureds are trying to save even greater amounts of money across the board. The result: more insureds will take bids in 2009 and insurance companies will be forced to participate in the process. While we expect upward movement in prices, we don't expect dramatic swings in the near term," he predicted.

By coverage class MarketScout said:

  • The largest decline was for business owners, which was down 10 percent.

  • Declines of 9 percent were found for commercial property and general liability.

  • A drop of 8 percent was recorded for commercial auto and crime.

  • A 7 percent rate reduction was listed for business interruption, umbrella/excess, workers' compensation, professional liability, employment practices liability and fiduciary.

  • Rates were down 6 percent for inland marine and surety.

  • Directors and officers liability was down 5 percent.

    Reductions by account size were found to be sharpest for large accounts, from $250,001 to $1 million, which were down 10 percent. Medium accounts from $25,001 to $250,000 were down 9 percent and small accounts up to $25,000 were down 8 percent.

    By industry class MarketScout found manufacturing and service industries to be down 10 percent; contracting, 9 percent; habitation 8 percent; public entity 7 percent; and transportation and energy 5 percent.

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