Survey: This Insurance Market Has Legs
By Michael Ha
The hard market for property-casualty insurance will be longer lived than a similar cycle in the 1980′s even as the pace of price hikes slows, an investment bank rate survey has found.
The survey, conducted by New York-based investment bank Fox, Pitt, Kelton, had 70 respondents from large and small agencies and brokers. The majority of respondents had less than $10 million in property-casualty commission income in the past year, said Dan Baransky, research associate at Fox, Pitt, Kelton, who compiled the survey results.
The survey shows that commercial p-c rate increases actually peaked last fall at 25 percent, and that the growth rate has now fallen to 20 percent. The study said its findings point to a "gradual easing in the market," noting that agents believe the market will still be hard one year from now in certain lines, including workers' compensation, medical malpractice, professional liability, and directors and officers liability.
"The survey helps confirm our view that even if rates begin to decelerate, they will continue to rise throughout 2003 and into 2004, especially for the longer-tailed liability lines," the survey authors wrote.
Fox, Pitt, Kelton found that the current cycle is a sharp contrast to the one in the mid-1980s, when "rates rose dramatically for a little over two years, from late 1984 through early 1987, but then flattened and started to fall by the spring of 1987." This cycle already has had a much longer duration, and evidence suggests that the decelerating rate phase will not turn into a declining rate phase until 2004 at the earliest, the study said.
Fox, Pitt, Kelton noted that the 20 percent average rate increase across commercial lines is below the peak of 25 percent recorded last fall, but still on par with results from spring 2002.
In the latest survey, 66 percent of the commercial lines responses across all lines indicated that new business rates are higher than renewals. This 66 percent rate, the survey said, is down from 78 percent last fall and 71 percent in spring 2002.
"We generally view this ratio as one that correlates with the hardness of the market," Fox, Pitt, Kelton said. The reason is that during the hardest markets, insurers focus on reunderwriting existing business. When the market softens, more companies are willing to write new business, lowering the prices for new business to the level of renewal prices.
Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
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