Agents, Brokers See No Free-For-AllYet
Buyers will stick with carriers unless price hikes become unreasonable, producers say
From small-town agents to executives with the largest global brokerages, personal opinions about the state of the insurance market are very similar. Producers see moderation or even softening in pricing, while a few lines especially workers' compensation and specialty liability coverages often remain difficult to place.
However, both agents and brokers express some optimism that as the market begins to make its turn out of the hard part of the cycle, there will not be a return to the extreme soft market conditions of the 1990s.
"There is a sense that the market is on the verge of turning even more," said David Benson, senior vice president of the Risk Management Practice for Marsh in Denver, one of a number of producers queried for the National Underwriter "State of the Market" survey who agreed to a more extensive follow-up interview.
The Response Center, an independent research firm based in Fort Washington, Pa., conducted the quantitative survey of 208 agent/broker subscribers on behalf of NU and the study's sponsor, Zurich's North American Commercial Business division in Schaumburg, Ill. (See pages XX-XX for related stories.)
"After witnessing rate increases for three straight years, we are seeing some leveling off. Competition is heating back up out there," noted Scott Stanberry, co-owner of Stanberry Insurance in Sylva, N.C., an independent agency that writes about $17 million in premium annually.
"There is overall downward pressure on pricing," said an executive with Aon, who requested his name not be used. "Increased capacity and lack of frequency in the catastrophe area over the last 18 months has led to satisfactory results for carriers."
Property insurance continues to soften more than casualty coverage, producers say, but professional lines such as directors and officers, medical malpractice and umbrella liability continue to see increases for many clients, although the magnitude of those hikes appear to be moderating.
Bob Grigas, a vice president with Acordia Insurance in Cincinnati, said some property accounts generating less than a 30 percent loss ratio are seeing premium quotes that are "flat, at worst," while some are seeing as much as 10 percent reduction. However, for specialty liability coverages, such as D&O and private company management liability, single-digit increases are more the norm, he added.
An overall moderating market does not translate to all sectors. For one niche player, increases can still be tremendous, such as for liquor liability insurance, reported Susan Fowler, president of Fowler & Associates in Troy, Mich., a surplus lines agency. Dealing through the Lloyd's market, clients are still seeing increases that run anywhere from 5-to-70 percent depending on claims history. The situation will not moderate at least through the end of the year, she believes.
"The line was given away for a long time," she said. "Now we are trying to recoup our losses and get things more in line."
While the market is making its inevitable and long-awaited turn, executives are cautious about the future. Some hope the soft market lessons of the 1990s have been learned. However, there remains the fear that underwriters will go too far to secure greater marketshare. There are some signs that competition is beginning to heat up, but lack of substantial returns on investments by carriers will help keep underwriters disciplined, some believe.
"A year ago, I couldexpect two or three quotes for an accountnow I canexpect five or six," said Mr. Grigas. "I'm starting to see more competition for business. It's not[like] the mid- to late-1990s yet, but there are pockets ofcompetition."
"Underwriters have not changed yetthey are keeping underwriting discipline," commented Mr. Stanberry, "but I wonder if they will hold the line. So far they are."
"Discipline will stay until investments get better for them," predicted Mr. Benson. "But they can't go completely back the other way or carriers will find themselves in the same position they were before this hard market."
As for buyers, the market does not appear to have had a serious impact on their overall loyalty to a carrierat least not yet. Buyers are more willing to forgive an increase where they have built a relationship with a company through difficult claims situations, producers say. But price increases can have their breaking point.
"There comes a point in time when someone says 'its not worth it,'" observed Mr. Grigas. "But everyone's idea of significant pricing is different on how much they will accept."
"You can only beat a client up with premium increases for two or three years before they retaliate," said Mr. Benson. "I hope we see some level of reduction."
"Buyers are more sensitive to having a stable long-term carrier than they were 10-to-15 years ago," noted Aon's executive. "Unless the alternative is appreciably cheaper, they would put higher value today, than in the past, in staying with a stable carrier."
The hard market "began after 9/11," noted Mr. Stanberry. "That first year, most every client, when you told them the increase was because of 9/11, they said, 'We understand.' Even the following year it was the same case. This year, more clients who see increases they feel are too much are shopping."
Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 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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