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Insurers complain that the commercial property/casualty market is like a snowbound car with an engine that just won't turn over-it shows no sign of moving out of a soft market that's lasted nearly a decade.

Capacity remains more than adequate for most risks, say insurers. Generally, rates are moving down, especially in directors and officers liability.

Increasingly sophisticated customers can take advantage of this buyer's market by demanding-and getting-enhanced loss control services and multiyear policies, insurers note.

Most insurers expect the relative tightness of the market for catastrophe-exposed property to continue. William Smith, senior vp-domestic general insurance at New York-based American International Group Inc., predicts a doubling of rates in catastrophe-prone areas.

But that assessment is not universal. Property rates are easing even in catastrophe areas, one insurer reports.

"In the last couple of years we have seen price strengthening, but that has mitigated at the Jan. 1 renewals, so prices are not rising as much in areas with catastrophe exposures," said Kathryn Lovaas, vp-technology underwriting for St. Paul Fire & Marine Insurance Co., a unit of The St. Paul Cos. Inc. in St. Paul, Minn.

The other exceptions to the rule are specialty property risks, according to several insurers, and even there the changes aren't dramatic. Rate hikes in the low double-digits are possible for specialty property, such as oil equipment, Mr. Smith said.

"There's a lot of competition, particularly for the more attractive accounts," said Michael L. Downs, senior vp at Hartford Steam Boiler Inspection & Insurance Co. Only about 10% of Hartford Steam Boiler's business renews in January-primarily large industrial accounts, risks that include property and machinery breakdown coverage, he said. Competition does not appear more pronounced on a geographic basis except for California and earthquake risks, which are less competitive, he added.

Among industries, property rates for less hazardous enterprises like pharmaceuticals and semiconductor makers are much more competitive than large chemical plants or large integrated pulp and paper mills, he said.

"We are ending what I would consider the ninth year in a soft market cycle, which is essentially unprecedented in recent history," said Wolfgang Friedel, senior vp at Arkwright Mutual Insurance Co. in Waltham, Mass. Because of the amount of insurance available and Bermuda reinsurance's increasing independence from U.S. and London markets, it is not likely to improve, he said.

"Cat exposures continue to be a concern. But for the most part, insurers and reinsurers have a pretty good handle on their cat exposures," he said. "Arkwright introduced a variety of software products last year to help us manage the losses a lot better than it had in the past. As a result, in the most active hurricane season in history, our hurricane losses were below $10 million."

The highly protected risk market remains "pretty level, stagnant, about the same as it's been for the last couple of years," said Jim Black, executive vp and chief operating officer of Protection Mutual Insurance Co. in Park Ridge, Ill.

"I think there's a short-term situation where, as more competitors come into the marketplace, there's going to be more pressure on it," said Michael McIntyre, senior vp of Allendale Mutual Insurance Co. in Johnston, R.I.

Hartford, Conn.-based Industrial Risk Insurers shed some business and "gave up some premium, and we think that has served us well," said Gale Norstrom, president of the property underwriting pool. As a result, IRI now insures about one-third fewer accounts-but with less than a 4% reduction in premium-than it did a year ago, he said.

"The traditional commercial property business continues to be pretty soft," said Frank Patalano, president of Schaumburg, Ill.-based Zurich-American Insurance Group's diversified products division.

He said capacity remains relatively scarce for major account business with catastrophe covers, though $250 million can be put together on a layered basis.

The property market has undergone a change in underwriting strategy, Mr. Patalano said.

"Traditionally, the whole market has been a rate-on-line pricing process, where they issue limits and they charge a percentage of that limit as the rate. What we're moving toward is understanding what the exposure is and charge for the peril, rather than doing aggregate pricing," he said.

This could include separating out the cat cover and pricing that based on exposure and then doing the same with the more traditional components such as fire coverage.

The fact that 1995 didn't experience spectacular natural catastrophes has led to some downward pressure on property rates, which is "short-sighted," said David McDonald, chief underwriting officer for Royal Insurance Group in Charlotte, N.C.

Meanwhile, the overall commercial casualty market "is highly competitive and driven by the fact that loss costs have slowed," said AIG's Mr. Smith.

"It's a very soft market. It's competitive everywhere and its gotten more competitive in 1995, compared with 1994, and I would expect it will remain competitive in 1996 as well," said Dale Lauer, vp-commercial lines underwriting at SAFECO Insurance Cos. in Seattle.

Generally, rates are flat for high-hazard liability and surety and bankers bonds, several insurers say.

Again, there are a few exceptions to the rule.

AIG is getting "substantial" double-digit rate increases for accountants that do audit work, though rates for non-auditing accountants are flat, said Mr. Smith.

High-layer or cat excess liability insurance is seeing "modest" increases in the low single digits, said Keith Fisher, a senior vp at X.L. Insurance Co. Ltd. in Hamilton, Bermuda, who handles general liability.

General liability rates remain flat, though Dick Wratten, president of Commercial Insurance Services, a division of CIGNA Property & Casualty in Philadelphia, reported very modest primary-layer increases that average 3% to 5%.

But the directors and officers liability market "is extremely soft, probably as soft as it has ever been, for both rates and conditions," said Jim Ansaldi, senior vp at X.L. who handles D&O and errors and omissions liability insurance. Reductions of 30% on excess layers are common for all but high-tech risks.

Rates for D&O generally are down 5% to 10%, though financial institutions dropped even further to an average of 10%, said John Kearney, vp-underwriting for Executive Risk Management Associates in Simsbury, Conn.

Rates for E&O coverage for computer software developers and hardware manufacturers are dropping by single digits, said St. Paul's Ms. Lovaas. Low-layer excess liability rates are also seeing a 10% cut, she said.

Lawyers' professional liability is a mixed bag.

"There is a lot of capacity (for lawyers) and rates are dropping rapidly in this class, probably in the range of 20%," said Mr. Ansaldi.

"In the lawyers' market, we are definitely seeing rate declines of 10% to 15% average," said Mr. Kearney.

But AIG's Mr. Smith described rates for lawyers as "modestly" higher, with single-digit increases.

"There is more capacity in the industry right now than ever before," said Edward Troy, executive vp-national markets for Boston-based Liberty Mutual Group.

While there's no sign the capacity glut will end, reinsurance is no problem, either.

Insurers are divided on the role Lloyd's of London will play, however.

"I think Lloyd's still has serious problems," said CIGNA's Mr. Wratten. CIGNA became less reliant on Lloyd's for reinsurance several years ago, he said.

Executive Risk uses Lloyd's for reinsurance and Mr. Kearney said the firm is "very comfortable" with the long-term relationships it has had with the syndicates it uses.

The continued soft market means that consolidation among primary insurers is certain to continue, agreed many underwriters, though some downplayed its short-term importance.

For example, Mr. Troy said that neither the acquisition of Continental Insurance Co. by CNA Financial Corp. nor Zurich Insurance Group's acquisition of much of The Home Insurance Co.'s business has significantly bolstered the acquiring companies' ability to compete.

"We see consolidation continuing to occur. I think we need it, we need the efficiencies in the market. Also, even though risk managers might view it as narrowing their choice, it could bring some stability on the loss side," Zurich's Mr. Patalano said.

Citing CIGNA's proposed reorganization, AIG's Mr. Smith said, "We are quite concerned about this trend by some competitors to attempt to disregard their old liabilities and leave policyholders in the lurch in favor of shareholders." If policyholder claims aren't paid, such activity will "discredit the entire industry," he said.

A few companies, such as SAFECO and Liberty Mutual, emphasized that they were "investing" rather than cutting costs to better serve customers.

SAFECO has made a "significant" investment in computer services to make communication between underwriters, loss control specialists and clients more productive. For example, they can review policy, claims and billing information online more quickly, Mr. Lauer said.

Insurers are also offering new products and applying new tools to meet the soft market's demands.

SAFECO's new SAFECOM electronic communication program allows communication with agents and clients, Mr. Lauer said. For example, agents can report claims online, view policy and claims information, and customers can send e-mail to agents and the insurer.

Executive Risk expects to offer a stand-alone employment practices policy by the end of January. It currently offers such coverage through a separate endorsement to a D&O product, says Mr. Kearney. It has already launched several new products, including: D&O for small private companies-those with up to $100 million in revenues-with employment practices liability coverage that includes a duty to defend; general partners liability coverage for any type of general partnership; an E&O policy for managed care organizations; and an "employed lawyer" policy to protect in-house counsel from E&O claims.

X.L. has raised limits on some policies and established a reinsurance subsidiary, Mr. Ansaldi said.

Customers are, of course, seeking ways to make the most of the market, and that includes marketing their programs, said several insurers.

CIGNA's Mr. Wratten was the contrarian, saying, "We are seeing less shopping by insureds" and "renewals are being ordered earlier."

Liberty Mutual's Mr. Troy said more and more clients are challenging the industry with requests for: performance guarantees; "gain sharing," which includes the possibility for both credits and penalties; and longer-term contracts of three to five years.

"Everybody wants an easier renewal process...including multiyear policies," said John Cavoores, executive vp and co-chief underwriting officer at Chubb & Son Inc. in Warren, N.J.

Mr. Kearney agreed that "we are seeing a greater number of multiyear policies.

Policyholders are also relying more on self-insurance despite the soft market.

Fortune 500 companies seem to trend toward larger retentions, either through deductibles and other forms of risk financing, said Arkwright's Mr. Friedel. More companies are realizing that trading of dollars in the lower level is a very expensive transaction and that the firms can manage that lower level if they do it internally, keeping in mind that for every dollar paid by an insurer there's 35 to 50 cents in "frictional" costs associated with it, he said.

Some customers are also turning to sophisticated programs like concentric risk integration devised by Norwest Corp. (BI, Jan. 9, 1995).

AIG's Mr. Smith said, "We are seeing a tremendous increase in this type of program."

X.L.'s Mr. Ansaldi said he is waiting to see how such a program sustains a major claim.

Policyholders want more and better services, noted several insurers.

Customers seek loss prevention services that are tailored to their specific industry, said Allendale's Mr. McIntyre.

But risk managers are in one way no different than the customers for any other service, he noted. "Essentially what the market will require is all those things that you read about any other industry, that the service be top-notch, that the costs be reasonable and competitive, and then you'll still have to be sure that you're back again tomorrow doing the job over again and better," he said.

Customers are requiring much higher levels of engineering value added to their coverage, said Hartford Steam Boiler's Mr. Downs.

This is particularly true regarding loss control, he said. Customers are looking to prevent losses, not just contain them.

Many companies are downsizing their corporate loss prevention groups and relying more on their insurers to augment their own capabilities to a greater degree, agreed IRI's Mr. Norstrom.

For risks in IRI's toughest classes-operations that involve chemicals, basic steel, woodworking-and for the pool's largest risks, the insurer is conducting two loss control surveys per year rather than one, he said, adding that IRI has probably increased its engineering staff by 10% to 15%.

The insurer is also making improvements to its electronic data processing platforms and emphasizing notebook computers for field engineers. "If we have a client that would like us to do more, we're prepared to do more," he said.

Among Fortune 1000 companies, customers are still willing to assume more risk, larger deductibles, larger self-insured retentions, and to implement loss control programs, said Chubb's Mr. Cavoores. "Risk managers for Fortune 500 companies are now being viewed as profit centers by their companies," he said.

Buyers are far more astute in terms of their insurance needs than 10 years ago, "and we created that phenomenon. Businesses are going to be more willing in the future to accept a bigger share of risk," said Royal's Mr. McDonald.

"There's a continued pressure on the part of the broker or insurer to provide added services at a reduced cost, and it is going to be incumbent upon the insurer or the broker for those that survive that duplication of services currently provided by those two parties are going to be eliminated, the buyer is demanding that, and rightfully so," he said.