Commercial Insurance Market Index Released

Top commercial insurance brokers, noting insurers have been buffeted by terrorist attacks, stock market woes and increasing environmental hazard claims, have cast their eyes ahead to the coming year and voiced concern that if economic conditions do not improve, the industry’s financial viability could be in jeopardy.

In data released in the third quarter 2002 Commercial Insurance Market Index survey of The Council of Insurance Agents & Brokers’ members—all among the top one percent of the nation’s largest brokers—86 percent of respondents have concerns about carrier solvency.”

In addition, The Council’s quarterly Market Index showed premium prices across all lines of commercial business continued to march upward for the period ending Sept. 30, 2002. Respondent brokers—all among the sector writing 80 percent of commercial property/casualty coverage—showed more than 60 percent of medium-sized and large accounts continued to experience price increases from 20 to 50 percent. Respondents said half their small accounts saw premiums rise 10 to 20 percent, and 20 percent more went up between 20 and 30 percent. The increases are consistent with previous “hard market” findings.

This quarter’s Index survey repeats the familiar post-9/11 story of higher rates, tougher terms and conditions and lower capacity,” said Ken A. Crerar, The Council’s president. “But solvency concerns emerge as troubling new twist. Large brokers are concerned state regulators and other solvency watchdogs do not confront solvency issues quickly enough to rehabilitate troubled carriers or get them out of the market. Yet, absent a federal solution, those are the only sources we currently have to assess carrier solvency.”

In terms of premium increases in the third quarter, not a single line of commercial insurance was spared higher rates, with the bulk of the price increases in the 10 to 30 percent range. Brokers reported that 20 percent of construction risks, 18 percent of the director’s and officer’s accounts, and 27 percent of umbrella policies had increased 30 to 50 percent.

In addition, medical malpractice coverage was significantly higher, with 18 percent of account premiums up from 30 to 50 percent; 12 percent of accounts up 50 to 100 percent; and 19 percent of the accounts up 100 percent.

The survey also showed that brokers and agents are turning more frequently to alternative markets to place risky or difficult accounts, with surplus lines and captives the most common choices.

And customers are dealing with higher premiums by dramatically altering their insurance choices. Higher deductibles are employed almost across-the- board, brokers reported, while 59 percent said their customers were self- insuring a portion of their risks. Of the respondents, 51 percent said some clients had foregone insurance totally and were “going bare” for risks previously managed with commercial insurance coverages.

“It’s important for the industry to focus on the very real financial challenges ahead. Solvency is a top priority—and one the industry and regulators must take very seriously. The purpose of regulation is to protect consumers. That cannot be done without a coordinated early warning system. As throughout the 90-year history of this association, our members lack full confidence the existing regulatory system works,” Crerar said.

Topics Trends Agencies Commercial Lines Business Insurance Market