Risk managers can look forward to a “buyers’ market” which is “soft and getting softer,” according to David Bradford, editor in chief of Advisen Ltd., which partners with the Risk and Insurance Management Society to produce the RIMS Benchmark Survey on market conditions.
“I think we’ve got a ways to go. I don’t see it bottoming out anytime soon,” he added.
From a risk management standpoint, he said, it makes sense to lower retentions and increase the amount of insurance being purchased.
“That’s a decision they have to make based on what they expect the retained losses to be, because at some point insurance has become so cheap that it’s much better for them to pass it off to the marketplace,” he said.
So far, he said, “we haven’t seen any wholesale reduction of retentions, but that’s a fairly common soft market strategy.”
Mr. Bradford explained that whenever rates begin to drop, negotiations to trade premium for terms start, “although we haven’t seen anything yet to suggest underwriters are giving coverage away.”
He pointed out that underwriting discipline is something insurers talk about and “eventually almost everybody finally succumbs to the market pressures.”
So far, however, “we haven’t seen it really go into a spiral,” he noted. “It still seems to be a relatively controlled downward motion.”
This renewal season, he observed, “I think risk managers of large companies are actually seeing some improvements in their catastrophe-exposed business for the most part,” adding that this isn’t always the case for smaller companies, which are seeing more flattening of the market.
Mr. Bradford said the subprime meltdown will have an impact on companies in the financial services area, “particularly those with direct exposure within the mortgage marketplace, particularly for their directors and officers liability and their errors and omissions coverage.”
“But aside from those two areas,” he said, “things are looking pretty good all around for risk managers in this renewal. There’s no question about it, it’s definitely a buyers’ market right now.”