Carriers Not Getting What They Want Most: Rate Increases

NU Online News Service, Oct. 5, 2:36 p.m. EST

COLORADO SPRINGS, COLO.—Insurance brokers say carriers are sending a clear message to them—they want to get rate where they can, but a weak economy and competitive pricing has them feeling glum about the prospects.

During interviews with NU Online News Service this week at the Council of Insurance Agents & Brokers' 98^th annual Insurance Leadership Forum held here at the Broadmoor Hotel, executives with leading insurance brokerage firms say carriers are sending clear signals that there is no broad-based increase in store, but the prospect of reduced earnings has them wanting to increase premium.

David Eslick, chairman and chief executive officer of Marsh & McLennan Agency (MMA), says right now carriers are suffering loss fatigue from the series of catastrophes they suffered through during the first half of this year. Where they may have expected one catastrophe to alter the direction of the market it has not happened.

Losses are straining reserves, and investment income continues to drop. Ultimately, that means the only place left for carriers to make money is through underwriting.

However, as insurers compete for business, they will not begin to get rate unless they exhibit “stiffer backbone,” Eslick says. “They need to take the initiative if they want more rate.”

George A. “Shad” Steadman III, vice chairman of Rutherfoord, a member of MMA, says that his sense of the markets is that “there is no significant firming of rates, but stabilization.”

Alastair Swift chief executive officer, global placements for Willis Ltd., says that when one examines all the underlying indicators, it is clear that rates should be increasing, but they are not.

“There are patches of rate firming,” he says, pointing to some areas such as catastrophe property and workers' compensation. Yet for other lines, such as directors and officers, some risks can see double digit decreases.

“There is not a general shift in the markets,” says Swift.

When there is talk of increases, he says clients are examining their retentions, assuming more risk and purchasing less insurance to lower the price. And if that doesn't work, the account can be shopped around.

“There are plenty of markets lining up to take the business,” says Swift.

However, the economy still hangs over every decision.

“A big concern is do customers have the money to pay for increases?” he notes.

“There are two forces pulling on one another,” observes Eric Andersen, CEO, U.S.A. for insurance broker Aon. “Clients have their economic challenges and that is not leading to new insurance opportunities, while carriers are dealing with making less money.”

For carriers, he says the current market has them “very depressed” and fearful that the same factors that are keeping prices depressed will continue for the next 12 to 18 months.

H. Wade Reece, chairman and CEO of BB&T Insurance Services says there is also uncertainty about the direction reinsurers are going to take, and some carriers are still vetting the RMS 11 new model revisions that have increased the exposures for some.

“That creates angst in the market,” he says.

“Having said all that, there is clear belief that there will be some turn on price,” says Reece adding it will be on a line-by-line basis; not industry wide.

One positive sign for insurers is improvement in the wholesale market, says Reece. BB&T owns the wholesale brokerage firm CRC Insurance Services.

The excess and surplus lines market is seeing a little increase in rate and some business that left for the retail market is coming back to the wholesalers. He says part of the reason is that carriers are becoming more disciplined in their underwriting.

He says usually when this begins to happen “it's a good sign for the industry.”

Kevin Brogan, managing director, national practice leader, property and casualty products and services for Wells Fargo Insurance Services USA, Inc., says that in some markets there are significant changes taking place for commercial accounts, primarily property risks with any exposure to wind, flood or catastrophe exposure.

However, property accounts without these exposures may see small increases, but probably not enough to satisfy insurers' need for underwriting profit.

He says overall, the markets will probably experience a continuation in 2012 of 2011, barring some significant loss that moves the markets.