Survey: Rates Flattening; Marsh CEO Says Don’t Rely On Hard Mkt. For Profit

According to the survey of the nation's largest insurance brokers, small accounts experienced a 1 percent increase in rates compared to a 1.3 percent decrease in the previous quarter.

Medium-size accounts on average had a decrease of 0.1 percent compared to a decrease of 2.9 percent for the first quarter of the year.

Large accounts (more than $100,000 in commission and fees) still are experiencing the greatest decreases, at 1.3 percent. The large-account decline was 4.4 percent in the previous quarter.

Lines of business where rate increases occurred, according to respondents, include commercial auto, commercial property, directors and officers, and workers' compensation.

For commercial auto and D&O, 21 percent of brokers say rates rose 1-20 percent. Twenty-nine percent say commercial property rose in the 1-20 percent range. For workers' comp, 37 percent say rates rose in the 1-20 percent range.

The Council says it received anecdotal comments from brokers observing that carriers "were getting tougher on terms and conditions and asking for more information on client risks." The association adds that similar comments were voiced during the first-quarter survey "as carriers traded off price increases for narrower terms and conditions."

Adding to the evidence of a market swing, Flagstone Reinsurance Holdings CEO David Brown said during a conference call on the company's second-quarter results that he is seeing signs of premium increases sticking. He says that the losses in the United States along with the revised Risk Management Services V.11 model change "aided in pushing rates up." North America catastrophe pricing rose 8-15 percent, he notes.

"We believe that the future rate environment will be dependent upon the upcoming wind season in North America," says Brown. He explains that if this hurricane season remains benign, then rates will remain stable, but if there is "a severe wind event or the occurrence of a single large event," rates would likely increase "significantly" come Jan. 1 renewals.

However, waiting around for a hard-market swing is not a strategy well-run insurance companies should rely on, according to Marsh & McLennan Cos. CEO Brian Duperrault. In an address in New York at the Lloyd's of London client event, Duperreault says, "Some of you may know that Lloyd's was created in a London coffeehouse in 1688. I think it was in 1689 that industry observers first started asking, 'So when do you think we'll see an end to this soft market?'"

Duperrault adds, "I've found that those who are always looking for the hard market do so because they've painted themselves into a corner—it's their only real opportunity to make money. The savviest institutions are the ones that—through solid instincts and hard work, prudent decision-making and smart planning, and sound policies and structure—make their money in soft markets. And when the market does eventually turn, they're sitting even prettier—it's almost a bonus."

With the losses the markets have experienced so far this year, and predictions of an above-average hurricane season, Duperreault says there is "a decent chance" of a turn occurring.

However, he says that "if you're running your business the right way—if you're writing smart risks—you're not waiting for the market to harden."

"The risk isn't in pricing," he observes, giving as an example the time he spent as the CEO of ACE. "It's never the price. I would tell my underwriters, 'I want you to get the best price you can get, but I don't want bad risk at any price.'"