While insurance brokers say they are starting to detect signs offirming in the commercial insurance marketplace, buyers on averageare still seeing premium rates decline. At the same time, someintermediaries expressed concern that the ongoing economic crisiscould undercut any benefits they would normally see on their top-and bottom lines once prices do begin to rebound significantly.

One of the earliest warnings onthis latter point was issued at the beginning of the year by BrianDuperreault, president and chief executive officer of Marsh &McLennan Companies.

Speaking at the annual joint meeting of the Association ofProfessional Insurance Women and the New York Chapter of CPCU inearly January, he said that while there are indications ofhardening in the insurance market, brokers may not necessarily seethe usual benefits of it in terms of higher revenue and biggerprofits.

“We are in the beginning stages of a hardening market, butcountervailing economic forces are turning this into our first'invisible' hard market,” he told his audience.

“When our market turns, it usually happens very clearly,” hesaid, adding that “normally, when we stand in the doorway of ahardening market, we know it.” However, other factors, such as theeconomic crisis, are at work, meaning that brokers “cannot see itsnormally positive effects for the industry.”

As he explained it, if clients go out of business or contracttheir operations significantly, even if prices for coverage arerising, the amount of insurable exposure is in decline, offsettingany volume gains from the premium increases. Thus, the “invisible”hard market, since insurers and brokers fail to see growth despitehigher rates.

However, if prices do start rising, at least producers and theircarriers have a chance to maintain their top lines to offset ashrinking exposure base–although risk managers buying insurancecertainly don't welcome higher premiums at a time when theirorganizations are under pressure to cut costs in a shrinkingeconomy, meaning more commercial buyers will be shopping theircoverage at renewal this year.

In January, there were signs that at least supported theimpression that the prolonged soft market cycle could be turning acorner.

The quarterly pricing survey of the biggest intermediariesreleased by the Council of Insurance Agents and Brokers saidcommercial property-casualty premiums “showed definite signs ofleveling off in the fourth quarter of 2008, across small, mediumand large accounts.”

By account size, in terms of commission and fees, 80 percent ofbrokers said small accounts were either unchanged or down 10percent; while for medium-size accounts, 69 percent said thoseaccounts were flat or down 10 percent. For large accounts, 58percent of brokers said accounts were flat or down 10 percent orless.

Another gauge of pricing trends, the “Market Barometer”survey–put together by MarketScout, the Dallas-based onlineinsurance exchange–showed a one percentage point dip in the averagerate of decline in commercial insurance rates for February from anaverage 9 percent decrease in rates to an 8 percent decrease–thefirst such tightening in four months.

However, the most frequent take on the market's direction isuncertainty about the future.

During his report on Willis Group Holdings' fourth-quarter andyear-end results, Joseph J. Plumeri, chair and chief executiveofficer, said that with the uncertainty hanging over the economy,the mega-brokerage would not release earnings guidance for 2009. Hedid say he was optimistic about the coming year, but it would bedifficult to predict future revenue–even in a hardening market–ifcustomers are buying less insurance.

J. Patrick Gallagher Jr., chair, president and CEO of Itasca,Ill.-based Arthur J. Gallagher, said during his firm's conferencecall with investment analysts that “I believe these are thetoughest headwinds we have ever been hit with.”

He predicted that business would be “unbelievably tough in 2009,as customers buy less insurance” thanks to the economic crisis.

J. Hyatt Brown, chairman and CEO of Daytona Beach, Fla.-basedBrown & Brown, said the economy was a major question markaffecting insurance placements in 2009. He said some marketdiscipline appeared to be returning to underwriting and prices werefirming in some lines.

However, regional companies suffered unexpected catastrophelosses this year, which could cause them to become moreconservative in their underwriting.

“Whatever happens, we have to be prepared for it,” Mr. Browntold financial analysts.

(Mr. Duperreault, in his talk earlier this year, also said allbets are off if a major catastrophe strikes, which would likelysend prices much higher, much more quickly–particularly fordisaster-prone property risks.)

In recent interviews with National Underwriter, severalbrokers said that while there is a lot of talk about a hardeningmarket, they are hard pressed to see any signs of one. However,there is growing concern that the deepening recession and creditcrisis will begin affecting clients–not only in the amount ofinsurance they buy, but also in how they treat their risk mediationdecisions.

“There's a confluence of events that I don't think anyone hasever seen before,” noted Michael S. Chapman, chief sales officerfor Hub International New England, a branch of HUB InternationalLtd.

Primarily writing in the small-to-midsize commercial market, Mr.Chapman said there is evidence of flattening in insurancerates.

Some customers have made changes in their exposure profile tosave money, but nothing dramatic, he said. However, since the endof the fourth quarter, he noted that payrolls are beingreduced–sometimes dramatically–and more clients are beginning tomake greater reductions in their insurable exposures and coveragepurchases.

But signs of a hard market remain difficult to discern, heconfessed, noting that a hard market is usually preceded by areduction in coverage and deductibles, yet that has nothappened.

At Dallas-based McQueary Henry Bowles Troy, Vice Chairman DonBowles said the firm sees the market stabilizing, but no sign ofrate increases at this point.

“The real question is how is the economy going to affect ourclients,” said Mr. Bowles, where the impact from the economicdownturn is especially noticeable in construction.

“[Construction workers] are working hard, but the backlog ofjobs is thinning,” he said, and the first indicators of reductionsin exposure are beginning to be felt.

“We have heard a lot of talk of hardening, but we have not seenit yet,” said Phil Rosenbloom, managing director for Des Moines,Iowa-based Bearence Management Group.

Bearence's geography is diverse, with main offices in Des Moinesand Minneapolis, and smaller offices in Kansas City, Kan.,Indianapolis and Nashville, Tenn.

Operating from the firm's Minneapolis office, Mr. Rosenbloomsaid renewals are flat to as high as 25 percent decreases–which, headded, is the exception. Most decreases are closer to 5 percent,with bigger decreases the exception rather than the rule.

However, with that general observation about pricing, that isnot to say there are not some increases taking place in some linesof business, according to those brokers queried for thisarticle.

There are clearly pricing increases taking place for residentialand commercial line customers with coastal risks, said Hub's Mr.Chapman. However, he added, hardening is not taking place becausesome clients are remaining with AIG–because, he says, they are notwilling to leave AIG when they still have lower prices, which ismaintaining some soft market dynamics. Some of AIG's competitorshave complained that the company is under-pricing risk, a complaintthe company has denied.

Mr. Bowles said insurance prices are firming in his region forGulf Coast properties, as well as for directors and officersrisks.

“We clearly are not seeing a hard market,” said Mr. Bowles.“There are still good homes for the best accounts with good lossexperience. Accounts with bad loss experience are more difficultbecause there are fewer choices.”

For difficult accounts, the wholesale market is beginning toreemerge, and some regional carriers have an appetite, according toMr. Bowles. However, he added, these insurers are putting anemphasis on claims management and loss control, with a focus onturning around the loss experience of these accounts.

The bottom line, he said, is that “there's still a market outthere.”

“A hard market gets difficult very fast,” observed Mr.Rosenbloom. “We'll know it when we see it.”

The focus of many carriers remains growth, said Mr. Rosenbloom,which means there is still plenty of competition to keep pricesdown. He wondered, however, at what point the downturn in earningsfor insurers will start to change their outlook and promptincreasing prices.

“Prices have been down for years, and now the carrier's earningresults are slipping,” noted Mr. Rosenbloom. “I guess at some pointit has to stop.”

Touching on the personal lines side, Mr. Rosenbloom said thatcustomers who in the past were not that concerned about price arenow shopping a little more than they did before. Policyholders wantto cut costs in order to save money in a down economy, henoted.

To help keep business in-house, he is emphasizing to customersthat the firm can shop for cheaper insurance. “People are lookingto cut costs on both the commercial and personal lines side,” saidMr. Rosenbloom.

The only increase he is witnessing is on the group benefitsside, where rates are continuing to go up, thanks to ever-risinghealth insurance premiums. Even there, customers are examining thedesign of their plans and seeking options to reduce increases, henoted.

What worries Mr. Chapman is at one point customers begin to cutcorners on their risk management mitigation by reducing necessarymaintenance and other risk control measures that could eventuallylead to an increase in claims.

However, Mr. Bowles said, he has also seen risk managers makingdecisions that would seem counter-cyclical in the current economicconcerns, with clients being more careful in their risk managementdecisions to cut the cost of risk, while retaining less exposureand transferring more to carriers.

Customers that are focusing more on their risk management will“improve claims experience, which works to their benefit” whenbuying insurance, he explained.

Buyers also want to be reassured that the company that isunderwriting their risks is secure, he added.

For the future, Mr. Bowles said, “we are hopeful things willimprove, but at this point we are being pretty conservative in ourplanning and expect this to be a long process.”

“We are still positive and our employees remain positive,” saidMr. Chapman. “We're still growing and hiring.”

“The soft market really put pressure on agencies to run moreefficiently,” observed Mr. Rosenbloom. “We're receiving lesscommission, so we need to be able to process more work for lessmoney and be better than the next guy. Efficient agencies will dobetter in this kind of environment. Those that are not efficientwon't last in a prolonged soft market.”