Buyers Still Face Some Tough Renewals

Rate hikes remain high for certain lines, selectedrisks, risk managers say

Despite rumblings of a softening market, some insurance buyersare reporting difficult renewal experiences that includesubstantially higher rates in certain lines and for particular riskprofiles, as well as even more detailed requests for informationfrom cautious underwriters.

There is also still some lingering bitterness over the lengthand severity of the hard market, according to a sample of riskmanagers interviewed more extensively after taking part in theNational Underwriter “State of the Market Survey.” Thesurvey, conducted by The Response Center, an independent researchfirm based in Fort Washington, Pa., was sponsored by Zurich's NorthAmerican Commercial Business division in Schaumburg, Ill. (Seerelated stories, pages XX-XX.)

Among buyers queried for the survey, 54 percent agree thatcarriers “took advantage of buyers in the hard insurancemarket”down from 61 percent in the fall, but still a substantialnumber.

Sean Donaghey, assistant risk manager for Boston College inNewton, Mass., said he hopes insurers will “stop taking advantage.Theyre trying to get back all the money they lost in the softmarket in one or two or three years.” He conceded that insurers areentitled to get their money back after years of major losses, “butI wish they would do it over a more gradual increase. Were hopingthe bloodletting stops in the next year or two.”

Mr. Donaghey said that for the first time in 15 years, “weve hadto go to the financial vice president and ask for increases in ourbudgetsIm talking about 60 percent additional money.”

“Its been tough,” he said. “The underwriters are looking for allkinds of information they never asked for before. Price increaseshavent been as much this year, but theyre still going up.”

One of the toughest renewals, he said, has been in workers'compensation. “Were going through the workers comp renewal nowtheexcess compand Ive never seen some of the information theyrelooking for. Its amazing,” he said.

Underwriters not only requested the number of employees perbuilding, but also wanted to know “the construction type of thebuilding, the year the building was builtthings they never askedfor before,” he said. They also requested “all kinds of financialinformation, and are getting deeper into the loss information.Things they took for granted in the past, they no longer take forgranted. They want to get down to the detail of the losses.”

Mr. Donaghey said the excess workers' comp application process“took me longer than normala couple of weeks. I had to go to newsources here at the university to find the information they werelooking for. It must be a horrible line across the industriesbecause every year its worsetheyre projecting another 20-to-30percent increase over last year, and weve never collected $1 fromthe excess market.” As far as property goes, he said, the news isbetter. Rates should be neutral or slightly higher than lastyear.

Steve Howe, corporate risk manager and director of humanresources for T.H. Rogers Lumber Company in Edmond, Okla., said hehas had better luck on renewals this year. “We look at them everyyearwe are still with the same carriers,” he noted. “Its atime-consuming process on my end, but its been better this yearthan last year.”

Mr. Howe said the market has loosened up a little, but thecompany's excellent loss history has helped with renewals. “Thecarriers have come out with some very good programs that I have notseen in the last couple of years,” he said. “So its softening alittle bit. Three years ago our carrier offered us a plain vanillaplan. Now they can see our safety programs kicking in. Our lossesare very lowwe have no more than a 21.2 percent loss ratio on alllines.”

Albert Knaak, risk manager for GMR Marketing Inc. in New Berlin,Wis., said the company's renewal increases on commercial auto wereabout 8 percent, and 5 percent on property. “Our employmentpractices liability jumped about 35 percent, but we had a number ofadditional personnel in the field,” he added. “We went from3,000-to-5,000 total employees, but that is part-time…Its socut-and-dry, and I feel the exposure isnt there, but its hard toconvince underwriters.”

John Rath, director of risk management for the Milwaukee CountyDepartment Administration, said underwriter requirements forinformation were definitely higherespecially for property andfiduciary liability. “For 2004, they were asking for considerablymore detail concerning loss runs and square footage,” he noted.“Were completing business interruption worksheets for eachlocation, which is extremely difficult, rather than doing it [on]blanket [terms].” The fiduciary side, he said, is requiring a recapof all claims and lawsuitspast and pending.

On the other hand, he said, “we found our airport liability, ourgeneral liability, and our automobile and energy systems policy[renewal] relatively simple. We had switched to a three-year policywith a guaranteed renewalthe renewal is guaranteed, [but] thepremium could change.”

He said airport liability premiums decreased slightly, whilegeneral liability, auto and public official liability had noincrease. Property had about a 10 percent hike, he noted. “Weve hadrelatively few losses with our airport. Our fiduciary was way offthe boardthats because of seven or eight pending lawsuits againstthe pension fund.”

Timothy Miles, risk administrator for the Central Arkansas RiskManagement Association in Little Rock, whose jurisdiction is partof a pool of cities, counties and school districts, said renewals“pretty much stayed the same, which in this market is what werelooking for.”

Mr. Miles said he is “optimistic that the market will ease up sothat our costs will remain relatively constant. As long as we keepour losses in line, I think well keep our costs pretty stable.” Headded that the industry is “relaxing a little. We have some controlover keeping our costs down. We have less control over the industryas a whole.”

Marie Kupferschmid, director of risk management for ATC LeasingCompany in Kenosha, Wis., said the most difficult renewal wasdirectors and officers insurance for her board members. “Ourcompany is pretty small, but its still a hard market for D&Ocoverage,” she noted. “Our premiums went up about 15 percent andthey cut our limits in halfwere paying more and getting less.”

She added that last year, “I dont believe we saw such asignificant jump in premium, although they did increase ourdeductible.” So, overall, their coverage has been “trimmed down,”she noted. “I dont see our renewals necessarily softening, butmaintaining. Were seeing the standard 5 percent [hike] on somecoveragesits been competitive with last years pricing.”

Reproduced from National Underwriter Edition, May 21, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.