Be ready when hard market hits
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The next hard market for property/casualty insurance likely won't hit buyers this year, but financial data indicate that insurers may seek to increase prices as early as next year, according to a new Business Insurance white paper.
According to industry experts, the commercial insurance industry's shrinking premium volume, increasing combined ratio, weakening investment yields and depleted reserves will increase pressure on insurers to raise rates.
Barring a major catastrophe, however, any market turn likely remains several months away, according to the white paper “Hard Market Game Plan: Steps Risk Managers Need to Take Before Rates Rise.” The white paper outlines concrete strategies that risk managers can adopt to prepare for the next hard market, whenever it happens.
In particular, shrinking reserves could cause future problems for commercial insurers, experts say. According to Conning & Co., U.S. property/casualty insurer reserves fell by more than $18 billion in 2009 compared with less than $2 billion in 2008.
Reserve drawdowns have been used by insurers to bolster insurer earnings during the past five years, but most of the redundancies have been removed, leaving insurers with little cushion in the event of adverse developments.
In addition, premium levels are approaching the same levels as 2000, just before the most recent hard market, and the industry's combined ratio crept up to 101.7% as of June 30 from 101% a year earlier.
The combination of all these factors could mean that to remain profitable, insurers will have to raise rates—especially if losses mount, several experts say.
To purchase a copy of this and other BI white papers, visit www.businessinsurance .com/whitepapers.
