Commercial insurance brokers from across the country are concerned that the Gulf Coast storms will prompt higher prices, reduced capacity and other negative changes in market conditions over the near term, reversing the softening trend across most markets.
The negative outlook was reflected in comments by agents and brokers responding to the third-quarter 2005 "Commercial Property-Casualty Market Index" report released yesterday by the Council of Insurance Agents & Brokers. The quarterly report of brokers on market conditions surveyed 142 members, reflecting a major portion of the p-c market placements.
CIAB members said they are bracing for other changes in market conditions including increases in deductibles and tighter terms and conditions for p-c coverage, according to comments accompanying the survey.
The Washington D.C.-based association quoted one unnamed broker in the Northeast as saying that a firm property market is emerging and that capacity on high-limit accounts is being reduced. Catastrophic exposures, such as flood and earthquake, have gone up from 50-to-200 percent, depending on the severity exposed.
Other brokers reported higher wind and flood deductibles and tighter business interruption underwriting since Hurricane Katrina.
CIAB reported that the brokers said they are preparing for the worst, even though the commercial casualty market experienced declining rates across all sizes of accounts in the third quarter. However, the reductions for medium and large accounts were not as great as in the first and second quarters of 2005.
For example, an analysis of the CIAB survey data by Lehman Brothers showed that the average commercial account experienced an 8.2 percent decline in renewal rates during the third quarter.
The Lehman analysis showed that the renewal premium for the average small account declined by 5.6 percent in the third quarter, the same rate as experienced in the second quarter.
Premiums for medium accounts declined by 9.4 percent, and large accounts declined 9.7 percent during the third quarter compared to double-digit decreases for medium and large accounts in the first and second quarters of this year.
The report showed some isolated premium increases and coverage changes, the CIAB said. Only broker errors & omissions and medical malpractice–16 percent and 14 percent of respondents, respectively–said their accounts showed double-digit increases between 1 percent and 10 percent. Predominately, brokers said pricing showed decreases between 1 percent and 20 percent. Only 6 percent of respondents said surety bonds displayed less than double-digit increase.
But the third-quarter survey period–for the months of July, August and September–covered only a few weeks of the Katrina-Rita aftermath, and brokers felt that the worst is yet to come.
Most commercial brokers responding to the survey said they expect the biggest impact of the hurricanes to be felt in renewals on Nov. 1 and Dec. 1 of this year, and in the always heavy Jan. 1, 2006, renewal period.
One broker, identified as being from the Midwest, said he was just beginning to see some hardening in the last few weeks of the survey, not impacting his October business. However, he noted there are indications that future renewals would feel the impact of hardening.
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