RIMS Survey Says Prices Decline As Broker Competition Grows

The cost of insurance coverage is continuing to decline, say risk managers, as they find that increased competition among insurance brokers is helping to control their costs.

In the 2008 Risk and Insurance Management Society Inc. Benchmark Survey, conducted by the consulting firm Advisen, risk managers say the total cost of risk per $1,000 of revenue, on average, fell 12 percent in 2007 from the previous year.

However, these results were not evenly distributed throughout the industry, and depending upon the line of business, the results could range from a slight increase to savings of 30 percent or more, according to the poll.

The survey found the cost of risk for workers' compensation continues to drop, but at a slower rate as reform measures in a number of states, principally California, take hold.

New to this year's report is a special broker services and remuneration study. Dave Bradford, executive vice president and editor-in-chief for Advisen, told National Underwriter that this part of the survey received more than 1,300 responses to a question covering the broker and risk manager relationship.

He said the questions were in response to numerous requests from risk managers to develop some benchmarks for broker services and pay.

Risk managers say they benefited from the competition for broker services in 2007 with fees and services undergoing "tremendous change" from competitive pressures and advances in technology.

Some said the demise of contingent commissions among larger brokers imposed by regulators and state attorneys general had worked to their favor.

In the past, Mr. Bradford explained, there was little transparency on brokerage charges and it was difficult for risk managers to negotiate price without understanding the payment structure. That has changed, along with competition for accounts. The result is cost savings on insurance, he said, because more customers are paying fees than commission, allowing risk managers more control over those costs.

The survey found 96 percent of risk mangers use a broker to place their insurance programs. Sixty-eight percent of respondents said they are paying brokers an overall placement fee not specific to any coverage.

From previous surveys, Mr. Bradford said risk managers are doing more shopping of their accounts, but not necessarily ending up moving them as they get concessions from their current broker.

However, more risk mangers are splitting up portions of their risks with other brokers, but they are not making a wholesale move of accounts away from their current broker.

Examining other areas of risk, Mr. Bradford said workers' comp rates remain competitive, and that a first-quarter analysis shows decreases are continuing. The decreases, he said, are not falling by the same degree seen in 2006 as reforms have taken hold.

Management liability costs (directors and officers and errors and omissions coverage) remain competitive, said Mr. Bradford, with no sign of the subprime crisis affecting the line. The exception, he pointed out, was for individual financial institutions with exposures that may see increases in the range of 25-to-50 percent.

"They are isolated cases in their sector," he said.

Property-catastrophe prices are seeing competitive declines, reflecting the soft market trends from abundant capacity, according to the survey results.

Mr. Bradford noted that without a major catastrophe loss, either affecting catastrophe property or the market as a whole, rates should continue to decline overall. He said figures being bantered about say it would take a $40-to-$55 billion catastrophe event or two to turn the market.

The subprime credit crisis is not having an overall affect on insurance rates, the report noted. Mr. Bradford said that short of a national economic meltdown, insurers' losses in their investment portfolios would not translate into rate increases.