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Property/casualty market hardening, but future rates unclear

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Property/casualty market hardening, but future rates unclear

CHICAGO—The property/casualty insurance market is hardening, but it is unclear whether rate increases are here to stay and lines such as workers compensation continue to present challenges, panelists said during the 2012 Harold H. Hines Jr. Memorial Symposium.

Three panelists discussed the evolving market and economic challenges during the symposium, titled “Navigating the Changing Marketplace.” About 150 people attended the June 4 event at the Union League Club of Chicago.

Thomas F. Motamed, Chicago-based chairman and CEO of CNA Financial Corp., said he sees a “transitional” insurance market in which some accounts still are experiencing rate reductions. Still, he said, insurers have sought modest rate increases in recent months.

“Many of the lines of business today are priced at levels that were equivalent to 2002,” Mr. Motamed said. “So there's been a tremendous reduction in pricing over the last decade, which is one of the reasons why underwriters are trying to push rates back up.”

Whirlpool Corp. is expecting midyear rate hikes and reductions for its various insurance policies that are in the process of being renewed now, said Scot M. Schwarting, director of risk management for the appliance manufacturer in Benton Harbor, Mich.

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Mr. Schwarting said when the company gets to its November renewals, that will show whether the property/casualty market price increases will be sustained.

“Are we at a tipping point where everybody's piling on and showing rate increases? No, I don't see that,” Mr. Schwarting said, “but I think the market is certainly testing to see what it will bear.”

Workers comp is among lines where insurers are looking to increase rates, Mr. Motamed said. He noted that margins for workers comp have been hurt by medical inflation rates of 7% to 9%, while the largest portion of workers comp costs are medical payments rather than indemnity costs.

“States will say you have to lose a lot of money before we give you get a rate increase,” Mr. Motamed said. “Well, we're losing a lot of money, so we'll probably get some rate increases.”

Panelists agreed that the market is interested in developing new insurance lines, but also said that it has been difficult to develop sufficient capacity for innovative products.

Matt Keeping, New York-based chief placement officer of Willis North America Inc., said insurers have worked to provide products for risks such as cyber liability and supply chain disruption. However, he said insurers have not yet been able to generate consistent offerings or enough capacity to fit client needs.

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“They are individually responding well, but they're not coming together as a market,” Mr. Keeping said.

He said he expects more demand for cyber liability and supply chain coverage. He also said he believes clients would be interested in insurance that would protect against risks related to protests, such as those held during last month's NATO Summit in Chicago.

“You not only have an angry mob; it's who makes up that angry mob,” Mr. Keeping said. “Actually, there's some pretty highly qualified people in those angry mobs; and if they get really angry, heaven knows what they can do by way of some form of cyber attack or something else around that space.”

Insurers may be reluctant to introduce new products because they don't fully understand evolving risks or how to profitably price new lines, Mr. Motamed said.

“This is a business that, quite honestly when you price a product, you don't know if you're going to make money or not,” Mr. Motamed said. “So you're going to have a natural reluctance to jump in with lots of capacity as a market or as an underwriter if you don't know where that's going.”

The annual Hines Symposium—honoring the late Harold H. Hines Jr., former president and CEO of Rollins Burdick Hunter Co., a predecessor of Aon Corp.—was presented by the Chicago chapter of the Risk & Insurance Management Society Inc. and Business Insurance.

Timothy J. Cunningham, a partner at Chicago-based OPTIS Partners L.L.C., moderated the panel.