Aon: Liability Market Healthy Through '07

The market for liability coverage will remain competitive through 2007, according to a new study by Aon, but a hardening of the market may not be far on the horizon.

In a market report titled "Look Beyond the Obvious," Aon analysts noted that the generally benign storm activity in 2006 has led to a worldwide decrease in rates for liability coverage, with plentiful capacity and competition expected to drive rates further down throughout 2007. These reductions, according to AON, are expected to be up to 25 percent in the U.S., with even greater decreases in Europe and the Asia Pacific markets.

However, the report also pointed to a rising global "compensation culture" trend, and said that more than half of the 53 countries examined saw an increase in both liability claims and severity of awards.

"This is an opportune time for buyers to look beyond immediate premium savings and to prepare for the longer term by targeting and preserving coverage critical for their businesses," said Simon Thompson, executive director of Aon Global. "While there may be minimal overt pressure now, past indicators suggest that when developing risks manifest themselves more robustly, or when a buyers' market, such as this, becomes a sellers' market, insurers will impose coverage restrictions. Identification and mitigation of key developing risks today will support the prudent buyer when facing a less receptive marketplace in the future"

While the report predicts that insurers will eventually begin restricting coverage and raising rates again, the timing of that shift remains unknown.

"There is no indication at present that the current competitive market will be reversing anytime soon," the report noted. "However, at some point the insurance markets will find their levels of profit being eroded and perhaps exhausted. Based on experience of previous 'market cycles' this may take some years yet, but major natural or indeed man-made catastrophes could hasten such an event marketwide."