Category Archives: Market Conditions

Marine Matters

The annual gathering of the International Union of Marine Insurers (IUMI) took place in Copenhagen, Denmark this week. One of the featured speakers was I.I.I. president Dr. Robert Hartwig, who gave a presentation focused on issues relating to the global maritime industry. As well as marine insurance trends,  such as  premiums, pricing and underwriting performance, Dr. Hartwig spoke on the economic environment for marine insurers in the context of a relatively healthy global economy and a depreciating U.S. dollar. The important role China is likely to play as a trading partner in the 21st century was another focus of his discussion. Catastrophe loss activity, the energy market and terrorism and liability-related issues in the maritime sector were other topics of discussion. Access the full report on the I.I.I. Web site.  

Workplace Safety Focus

We blogged recently (see Aug 6 posting) about the continued declining claims frequency for workers comp injuries in 2006. A PowerPoint report by I.I.I. president Robert Hartwig, presented at the 62nd Annual Workers Compensation Educational Conference in Orlando, Florida, earlier this week, offers further details on the state of the workers comp line. Dr. Hartwig notes that workers comp insurers should be justifiably proud of the historical role they have played in reducing workers’ injuries. In fact, workers comp insurers and the entire workplace safety community have contributed to a 14 percent decline in workplace fatalities since 1994. Further, the rate of fatal work injuries continues to drop and is down 26.4 percent since 1994 – nearly double the 14 percent decline in the number of on the job fatalities. The report underlines that workers comp insurers are a major force in saving workers lives, increasing productivity and preserving worker incomes. For additional data on workers comp insurance, access Mega-Trends Influencing the Workers Compensation Insurance Industry online.

Two Sides to Workers Comp

The saying that there are two sides to every story really resonates in workers compensation and the latest research brief from the National Council on Compensation Insurance (NCCI). On the one hand workers, employers and their insurers can take comfort from the fact that the decline in claim frequency for workers compensation injuries continued into 2006 and continues to be widespread. For example, NCCI notes that all geographic regions of the country experienced significant declines over the last five years and despite some variation the decline in claim frequency occurred in all major industry groups across almost all occupations. But while workers comp claim frequency is down, NCCI cautions that indemnity and medical severities continue to rise. Indemnity severity increased by an estimated 5.5 percent in 2006, while the estimated rise in medical costs for 2006 is 7.5 percent. Medical price inflation and the utilization of medical services (including prescription drugs) are significant drivers of this trend, according to NCCI. What do you think? Check out further I.I.I. facts and stats on workers comp.  

Med Mal Alternatives

Two reports published yesterday by ratings agency A.M. Best on U.S. captives and risk retention groups (RRGs) point to continuing growth in these alternative market mechanisms, even amid soft market conditions. A number of trends are highlighted, but one interesting  nugget is that medical malpractice accounts for a significant portion of business for both captives and risk retention groups. According to the reports, medical malpractice continues to be the dominant line of business for domestic captives (close to 40 percent), while medical malpractice (claims made) accounted for 43 percent of RRG business in 2006. Which leads us to conclude that despite greater stability in the price of medical malpractice insurance and some improvement in the tort environment, doctors are not looking to return to the traditional market in a hurry. Check out I.I.I. updates on captives and alternative risk transfer mechanisms and on medical malpractice online.

Global Trends

The decision whether to operate purely on a domestic basis or to expand globally is a key one for many companies. Cultural, economic, political and regulatory differences can make for a challenging global environment. For those considering a global presence, the good news is that world insurance premium growth in 2006 accelerated, with total premium volume growing by 5 percent, according to a study from Swiss Re sigma. However, the same study indicates the world insurance outlook for 2007 is mixed. While healthy growth is expected to continue in life insurance, boosted by solid development of savings and pensions products, Swiss Re notes that premiums in non-life are expected to stagnate. Overall profitability is set to remain robust. As always, the findings of this annual world insurance report reflect contrasting growth between life and non-life sectors. For example, 2006 saw the life insurance market grow by 7.7 percent, while global non-life business grew by just 1.5 percent. There was also a sharp divergence in performance between the industrialized world and the emerging markets. For non-life the industrialized world saw marginal growth of 0.6 percent, while the emerging markets saw robust growth of 11 percent. For life insurance, industrialized countries produced growth of 6.6 percent, while growth in emerging markets was 21.1 percent. For further info check out I.I.I.’s international insurance site.  

Benchmark Lowers

That commercial insurance premiums continued their decline in the first quarter of 2007 is only part of the story of the RIMS Benchmark Survey. But let’s take a look at the  highlights: Directors and Officers (D&O), down by 7.7 percent in Q1 2007 and by more than 12 percent in the last two quarters of 2006 combined; workers’ compensation down by 3.8 percent in Q1 2007; and general liability down by just 0.8 percent in the fourth quarter of 2006. Once again commercial property was the only line to report an increase in Q1 2007. No surprise there, but consider that rates in this line reflected a marginal increase of just 0.8 percent, compared with a spike of 6.6 percent in the fourth quarter of 2006. While there is no doubt that companies with properties in catastrophe-exposed regions are still seeing premiums rise, perhaps the underlying story is that even risk managers with coastal property exposures are seeing some relief ahead of  the 2007 hurricane season. For more perspective on pricing and overall industry trends, check out I.I.I. president and chief economist Dr. Robert Hartwig’s latest Overview and Outlook for the P/C Insurance Industry.  Ã‚  

  

D&O Calm?

In our February 8 posting we cited a RIMS Benchmark Survey showing that the Directors and Officers (D&O) line saw some of the largest decreases in premium rates in the fourth quarter of 2006. Now a Towers Perrin survey confirms this trend, noting that the average D&O premium dropped by 18 percent in 2006, after declines of 9 percent in 2005 and 10 percent in 2004. Both reports attribute the softening market to the sharp drop in the number of securities class action suits filed in 2006. While the moderation in prices is good news for D&O insureds and their agents and brokers, the Towers Perrin survey offers this note of caution: “We do not believe that the current improved risk profile will support prolonged soft market premium decreases if underwriters want to write this line profitability.† Indeed, in a speech to the Professional Liability Underwriting Society (PLUS) D&O Symposium earlier this year, John Degnan, vice chairman of Chubb, pointed out that if shareholder derivative claims are included, it appears that overall D&O claim frequency was up, not down, in 2006. Degnan went on to urge D&O insurers to be vigilant, lest the “perfect calm† turn out to be merely the eye of a larger storm. Wise words.

Hill Hearings

Availability, affordability and oversight are the watchwords of two separate hearings on Capitol Hill today. Hearing No. 1. before the Senate Committee on Housing, Banking and Urban Affairs will examine the availability and affordability of property casualty insurance in the Gulf coast and other coastal regions. Dr. Robert Hartwig, I.I.I. president and chief economist, will deliver testimony noting how population growth, rising property values and continued development in vulnerable areas are increasing the cost of property damage inflicted by hurricanes. Current regulatory, legislative and litigation-related obstacles are also raising costs and reducing choices for insurance consumers in hurricane exposed areas. The second hearing before the Senate Committee on Commerce, Science and Transportation will focus on oversight of the property and casualty industry. The industry’s limited federal antitrust exemption under the McCarran Ferguson Act is expected to be the topic du jour.  

Subzero Market

Surveys of current policy renewal prices as reported by agents and brokers, and corporate risk managers, have confirmed a further softening in the commercial insurance market. With the sole exception of hurricane-exposed coastal property coverages, insurers appear willing to lower prices and place fewer restrictions on coverage to get new business, according to the latest market survey from the Council of Insurance Agents & Brokers (CIAB). Ditto the RIMS Benchmark Survey, where the largest decreases in premium rates in the fourth quarter of 2006 were reported in Directors and Officers (D&O) and workers’ compensation lines. D&O, in particular, continues to be a very competitive line of business with rate decreases further stimulated by the sharp drop in the number of securities class action suits filed in 2006, according to analysis from Advisen. Meanwhile, online insurance exchange MarketScout puts the average P/C rate decrease at -9 percent in January 2007.