NEW ORLEANS–The commercial insurance industry continued to experience an overall decline in total cost of insurance coverage last year, according to data released today by the Risk and Insurance Management Society.
The information was contained in the RIMS 2006 Annual Benchmark Survey book compiled by Advisen.
"Property costs were down slightly, but they were being buoyed by the pricing increases in all the catastrophe-exposed regions," Advisen Editor-in-Chief David Bradford told National Underwriter.
He noted that the survey's "big surprise" was how the cost of workers' compensation coverage continues to fall. While much of this is driven by capacity, a large part is also being driven by reform measures in states like California and Florida–a trend that is spreading, with legislation recently passed in New York.
Property coverage, he said, continues to be a "mixed bag," although prices are beginning to level out in catastrophe-exposed regions.
Anecdotal evidence is that with the latest round of renewals, some risk managers were actually getting rate decreases on property-exposed business as well as better terms.
"Things are starting to stabilize," he said. "I wouldn't say they're starting to improve materially, but they're certainly stabilizing." He added that rate increases have balanced out the rate decreases that buyers in non-catastrophe-exposed regions have seen.
The survey, with data collected and analyzed by Advisen, Ltd., which also provides the technology infrastructure for the survey's online services, found the above-average season for hurricane activity predicted by meteorologists never materialized. At the same time, hurricane losses were a significant contributor to the total cost of insurance coverage for North American firms and governmental entities as the record-shattering hurricanes of 2005 impacted 2006.
Property insurance premiums skyrocketed, according to the study, not only in hurricane-exposed coastal areas but also in California as lessons learned from Hurricane Katrina were factored into earthquake pricing models.
But while premiums for properties in catastrophe-exposed regions were off the chart, insurance costs for property insurance in other regions and for most other lines of business continued the downward spiral begun in 2004.
"Falling insurance costs continue to be driven by rapidly accumulating policyholders' surplus, the measure of 'supply' in the insurance 'supply and demand' equation," Mr. Bradford said in a statement.
He added, "The insurance industry recorded a profit in 2005, in spite of record catastrophe losses, which further fueled competition in 2006." This led to a sharp decrease in cost of insurance coverage, he said. Absent unusually severe natural catastrophe losses, accumulating surplus should continue to exert downward pressure on insurance costs in 2007.
Key findings in the 2006 RIMS Benchmark Survey:
o Property costs rose sharply in catastrophe-exposed regions, substantially offsetting decreases in other regions.
o Workers' compensation costs fell again in 2006, driven substantially by reform measures in several large states.
o The average cost of insurance coverage fell by 9.2 percent for all survey participants, though there was wide variation by industry.
"The insurance market is very unsettled at this moment," Joseph Restoule, RIMS secretary and member of the board of directors, said in a statement.
"The RIMS Benchmark Survey helps risk managers better assess current conditions and identify important trends impacting insurance purchase decisions. By benchmarking their programs against those of their peers, risk managers can make more informed decisions about how much coverage to buy, how much risk to retain and how much to pay for insurance," Mr. Restoule commented.
The book contains data collected in the 12 calendar months of 2006 and covers 14 high-level industry groups (energy, telecommunications, professional services, banks, consumer staples, education, government/nonprofit, health care, information technology, utilities, consumer discretionary, industrials, materials and non-bank financials).
The online survey provides an expanded view of the insurance industry based on more than four years of data (2003-2007). The online survey also provides a broader view of insurance groups, covering 35 lower-level industry groups.
RIMS said it is taking purchase orders for the book, which will ship in mid-May. The report can be bought online at www.RIMS.org/benchmark. Special discounts apply to RIMS members and survey data contributors.
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