While the costs of goods and services may be declining lately due to the effects of the economic crisis, insurance buyers wont have the same luck.
According to a recent market update from global insurance broker Lockton, insurers should expect to raise premiums in the coming months thanks the deterioration of underwriting performance, evaporation of investment income and decline in profitabilitya "perfect storm" of negative developments for insurers in 2008. As a result, diminished capacity and financial pressures may now give underwriters greater incentive to maintain pricing discipline than during the last several years.
However, Lockton reports that since insurance capacity remains fairly high compared to historic levels, it is likely that rates will not change rapidly. Certain risks have already seen increases, and rate decreases may be beginning to flatten across the board. There will likely continue to be significant variation by line, industry and according to loss history.
Additionally, Lockton has seen significant variation by industry in the past three to four months. In primary casualty lines, Lockton reports average rate changes from 10% decreases to increases of 10% for clients with regular loss histories. Likewise, in property lines, the update notes slight decreases to significant double-digit increases for catastrophe exposed property.
Other highlights from the report include:
Financial and Executive Risks Michael Schwander and Ken Capone of Lockton Denver say, "The five-year span of reduced premiums, broad terms, and increased capacity in the directors and officers market has ended abruptly, especially for financial institutions and venture-backed start-ups. The easy times may be over, but companies that pursue prudent strategies can still achieve satisfactory results."
Property Jim Rubel of Lockton's Global Property Practice says property insurers are feeling the burden of higher losses and reduced capital. "The result is that the buyer's market of the past few years is undergoing a dramatic change, with insurers hoarding capital, curtailing capacity, and raising prices on most catastrophe and loss-prone property programs.
Casualty Mark Moreland of Lockton's Risk Management team notes that most casualty buyers have still seen favorable renewals, but that may soon change. "Over the next quarter, our view points toward a continuing favorable market with the realization that we are ator very nearthe bottom of the pricing cycle."
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