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Lower commercial insurance rates expected at renewals

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COLORADO SPRINGS, Colorado — Commercial insurance buyers should anticipate lower rates and wider choice in coverage terms at upcoming renewals as insurance pricing softness accelerates in most lines.

Catastrophe property insurance rates are seeing the greatest declines with double-digit rate decreases, but noncatastrophe property prices and rates in many liability lines also are falling as capacity remains plentiful, brokerage and insurer executives say.

Despite the competitive market, other factors, in particular low interest rates, are preventing insurance prices from going into freefall as insurers seek to maintain underwriting profitability, they say.

As they strive to grow their business in the soft market, brokers and insurers are targeting areas of economic growth, such as the construction sector; areas where liabilities are perceived to be increasing, such as cyber risks; and looking for efficiencies in the placement of middle-market accounts.

Absent a huge catastrophe, the buyers' market should remain intact going into 2015 and beyond, executives said during the Insurance Leadership Forum, sponsored by the Council of Insurance Agents & Brokers and the Council of Insurance Company Executives, held in Colorado Springs, Colorado, earlier this month.

The market is softening, “but it's not falling off a cliff by any stretch of the imagination,” said Scott Goodreau, chief sales officer at Hub International Ltd. in Chicago.

The biggest decreases are in catastrophe property lines, where rates have fallen 15% or more, as sharp drops in reinsurance pricing push into the insurance market, said Ben Walter, CEO of Hiscox USA in New York.

But the aviation market, where insurers have seen significant losses, is seeing flat renewals, which may signal further softening in other areas, said Matt Keeping, chief placement officer at Willis North America Inc.

Some liability lines, such as workers compensation in certain states, are still seeing increases. “But even there, we saw high single-digit increases a year ago, and now they are in the low single digits,” he said.

Some general liability accounts, directors and officers liability coverage and other specialty liability lines also are seeing some modest increases, but for the most part prices are dropping, brokers and insurers say.

“We are still getting rate on D&O ... and in some areas we are seeing increases on workers comp,” said Hiscox's Mr. Walter. While the claims experience on both lines has been poor at times, “on med mal we've seen decreases because the exposure has reduced due to various reforms.”

“Everyone seems to be acknowledging that the soft market is here. The question is: How far does it go? No one is predicting that interest rates will go up soon, and underwriting discipline is being maintained pretty well, but we are starting to feel that there's a hunger in the market to retain business, and we are not seeing anyone pull out of classes,” Mr. Keeping said.

In addition to reducing rates, insurers are more willing to offer multiyear deals, but it's too early to label it a trend. Buyers also are looking to reduce self-insured retentions, several brokers said.

To grow business, brokers and insurers are targeting economic sectors where activity is growing, such as construction.

“When the economy was in the doldrums, we invested in construction assets — brokers and other staff — and we've seen that grow” tenfold, said Ralph Hurst, president of the national brokerage group at Alliant Insurance Services Inc. in Newport Beach, California.

Construction-related business has been a significant area of growth for Miller as well, said John Eltham, head of North American broker business at Miller Insurance Services L.L.P. in London, which has increased its architects and engineers professional liability business. With a significant increase in architectural firms taking on design/build projects, their liability exposures are increasing for poor building work, he said.

Brokers and insurers also are seeking to drive efficiencies in placing middle market business, with several looking at centralized placement mechanisms. All, however, say they are taking care to avoid the problems surrounding contingent commissions that arose with some previous attempts to establish central placement hubs and accusations that brokers used them primarily to maximize their revenue.

“The frictional costs of insurance are still too high,” said Michael Kerner, CEO of general insurance at Zurich Insurance Group Ltd. in Zurich. “If a broker is handling a piece of the transaction, we should not be doing it as well and vice versa.”

Zurich will work with brokers that are building centralized placement facilities, but “the key is to make sure that there is no conflict” of interest, he said.

Hub is building more regional expertise to allow its clients to access specialist brokers, Hub's Mr. Goodreau said. “Clients want the best coverage at the best price and access to the right resources regionally.”

Alliant also is targeting more middle-market business, said Thomas W. Corbett, chairman and CEO of the brokerage, through its Alliant Americas unit. The brokerage aims to offer midsize clients access to the specialty capabilities offered by the main brokerage. “Plain vanilla coverage has always been available to them, but now maybe they can get vanilla with chocolate sauce,” he said.

Cyber risk is another area where brokers and insurers expect more business.

“There's a great need for risk management solutions on cyber risk, and the breaches have brought the attention of the C-suite,” said Mr. Kerner. “The products in the market don't solve all the problems, but we and the market will develop solutions ... The demand is there and the need is there.”

Specialty cyber products are emerging, said Miller's Mr. Eltham

Miller, he said, recently bound coverage for a large North American utility, which he declined to identify. The policy provided $100 million in limits and covers physical damage, business interruption and third-party liabilities.