Flag: Market Barometer

Soft cycle no longer fueled by irresponsible competition

MarketScout.com, an Internet-based insurance distributor, saidproperty-casualty premiums fell an average of 2 percent inMay–identical to the rate of decline seen the month before.

However, the firm also noted an interesting development in thesoftening market–the death of “rogue underwriters.”

Property rates remained flat in May, while workers' compensationfell 1 percent, casualty premiums declined 2 percent and managementliability dropped 4 percent.

Small accounts saw prices stay flat, while rates of medium-sizedaccounts went down 2 percent and large accounts dropped 6percent.

Richard Kerr, chief executive of Dallas-based MarketScout.com,observed that in the current market, prices could soften, “but at avery slow, measured pace…resulting in the elimination of wildlyfluctuating premiums.” He cited the absence of “rogueunderwriters”–insurers who would cut rates deeply as the soft cyclebegins–as a cause for optimism.

Mr. Kerr said that in the “good old days” when the industryentered a softening market, “there were always seven or eightinsurers who would blaze the trail by deeply discounting rates.”These companies, he added, were almost always staffed by a senior“rogue” underwriter who would try to make a name for himself bybecoming known as “the hottest hand.”

However, according to Mr. Kerr, “something very strange ishappening in the soft market of 2005. There are very few rogueunderwriters.” He said that with new requirements for fiscalresponsibility and accountability, it just may be possible therogue underwriter has become extinct. “That would be a positivemove for the industry,” he added.