ISO Chief: Hard Market Ending

ISO Chief: Hard Market Ending

NU Online News Service, Nov. 5, 3:25 p.m. EST?Even though his organization is predicting a 101 combined ratio for 2004, the hard market is ending, said the chairman of the Jersey City, N.J.-based Insurance Services Office during a presentation in Anaheim, Calif.

Frank J. Coyne, ISO chairman, president and chief executive officer went on to warn insurers not to abandon sound underwriting and pricing that led to recent, improved results.

"The firming in insurance markets that benefited results through six months is in danger of becoming a thing of the past," he said, during a keynote address to insurance executives attending the 7th Annual ISOTech Conference.

According to a transcript of his remarks, Mr. Coyne said ISO's analysis of rate changes on renewal for commercial policies shows "rate increases versus year-ago levels peaked at 12.9 percent in July 2002 and have been on a downward slide ever since."

He continued that if the next soft market "is not already upon us, the hard market certainly is coming to a close."

Mr. Coyne said ISO projects that the industry's combined ratio (the measure of losses and other underwriting expenses per dollar of premium) for 2004 will improve to 101.0 percent.

"But we also project premium growth will slow significantly from 14.3 percent in 2002 to 6.1 percent for 2004," he said, also noting that first-half 2003 written premiums grew 11 percent over the year-ago period.

"With each improvement in profitability, the property-casualty industry has a history of reverting to hyper-competition for market share," Mr. Coyne said. He noted that while "a period of sustained profitability seemed possible" in the mid- 1980s, "once again, a hard market had sown the seeds of its own destruction, and the industry slipped into the most protracted soft market in history."

Among the consequences insurers have faced as a result of failing to adhere to disciplined underwriting and cost-based pricing are the growth of alternative market mechanisms (which he said amount to nearly 50 percent today) and increasing numbers of insolvencies.

In the first three years of this decade, an average of 33 property-casualty insurers failed each year, compared with 12 per year in the 1970s and 27 per year in the 1980s and 1990s, he said.