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Policyholders can look forward to reduced rates for nearly all their commercial coverages in 1997, broker Sedgwick Inc. forecasts in a new report.
The continued financial strength of insurers, the increasing variety of risks that insurers are prepared to assume and the lure of the alternative risk markets all will help keep prices down, the broker says.
While some pockets of coverage, such as workers compensation, may see some slight increases in rates, the buyers' market for commercial property/casualty insurance will continue unabated, the report predicts.
The casualty market, in particular, shows no sign of hardening, according to Sedgwick's Insurance Markets Trends and Developments 1997, which will be released this week at the Risk & Insurance Management Society Inc. annual conference and exhibition.
The market was competitive last year, and "there is still no sign that this trend will end soon," says the report, the work of about 30 Sedgwick personnel.
The reasons for that, it says, include: insurers are generally in a strong financial position; more insurers are writing a wider variety of coverages; the continued growth of the alternative risk markets; and continued efforts toward tort reform, which could provide a more profitable environment for insurers.
"We expect primary liability rates to continue in free fall, with multiyear contracts commonly offered. Capacity is plentiful. Terms and conditions will be broadened to retain customers," the report says.
Umbrella and excess markets also are competitive, with limits of more than $25 million commonly offered by single insurers.
Specialty casualty markets also are expected to offer better terms and conditions to policyholders.
The environmental liability insurance market, in particular, is offering more coverages, the report says.
Numerous companies now offer environmental liability coverages, and last year 15 new products were introduced, it says.
In addition to coverage for contractors and consultants remediating waste sites, insurers now also are covering: Brownfields properties; asbestos liabilities, capped and removed from the balance sheet; acquisition and divestiture properties; ground water pollution from a landfill; and radioactive sites for the government, the report says.
"In short, the market has gone from a plethora of insurance companies in the 1970s offering some type of environmental coverage, to a dearth of coverage during the 1980s.*.*.*.to numerous carriers today offering more than 100 policy forms," Sedgwick says. "What does this mean for the customer? Available coverage, at reasonable prices, negotiated policy wording and a willingness on the part of the underwriter to find a solution to the customer's problem."
Capacity for directors and officers liability insurance expanded for the 11th consecutive year in 1996, the report says.
"The U.S. marketplace has transitioned from soft to extremely soft," it says.
In the past year, risk managers also have been offered an increasing amount of employment practices liability coverage. The report noted, however, that the cost often is too high, and demand for the EPL products has not yet taken off.
But with an increasing number of employment-related damage awards, the coverage should eventually become as prevalent as D&O coverage, according to Sedgwick.
Other survey findings include:
Risk managers with aviation risks should expect flat or lower rates in 1997.
Airline underwriting has been profitable over the past five years, which should help keep the lid on price increases, the report says.
"The past 10 years have produced premiums of $5.6 billion, with losses of $1.8 billion. This favorable trend has created a competitive marketplace as underwriters aggressively go after" aviation products business.
The marine market also expanded over the past year.
Hull and machinery capacity expanded worldwide. "The expanded market capacity and keen competition has led to a deepening of the soft premium market conditions which continue in 1997," the report says.
Many insurers are trying to lock into the current rating levels for hull and machinery by offering two- to five-year policies, it says.
The only area where underwriters are remaining firm is on the high deductible levels.
The marine cargo market also has seen capacity increase over the past year, and insurers are offering broader coverages, the report says.
Marine cargo "markets are more receptive to specialized risks, such as business interruption insurance, storage risks, as well as typical property risk."
For a free copy of the survey, contact Sedgwick Inc., Communications Department, 1000 Ridge-way Loop Road, Memphis, Tenn. 38120; 901-684-3500.