New York, NY, Mar. 9--After nearly three years of double and even triple digit premium rate increases, some insurance prices have begun dropping for U.S. businesses.
Premiums for insurance to cover damage to commercial property such as office buildings and factories have declined over the past five months, according to insurance executives, brokers and analysts.
The declines are welcome relief to many businesses that have struggled amid unusually strong pricing power for the property-casualty-insurance industry, especially during the economic downturn.
On the liability-insurance front, meanwhile, rate increases are slowing sharply and in some cases dropping, too. Certain lines, though, such as directors and officers and medical malpractice, continue to post sharp increases, the executives, brokers and analysts said.
"Prices are coming down," said Richard Kerr, chairman and chief executive of MarketScout, a Dallas online market that links insurers and about 50,000 agents. "This will put billions of dollars back into the hands of business owners through a reduction of their overall insurance costs."
Property insurance premiums for U.S. businesses declined 8.8% in the fourth quarter compared with the year-earlier quarter, the first year-over-year decline in four years, according to David K. Bradford, executive vice president of Advisen Ltd., a New York firm that collects insurance-pricing data on behalf of the Risk and Insurance Management Society, a trade group for risk managers.
Combined, property and liability insurance rates for U.S. businesses rose an average of 9% in February from a year earlier, according to MarketScout data. Overall, liability insurance is probably a bigger part of the insurance market. But many businesses saw their actual insurance costs flat or even down slightly, Kerr said, because they don't buy the kinds of insurance where prices continue to rise sharply.
Prices began to climb in 2000 and skyrocketed after the Sept. 11, 2001, terrorist attacks, which are projected to cost insurers $35 billion after all claims are settled. The higher premiums are the legacy of many factors beyond the attacks, including relentless price wars and aggressive risk taking in the late 1990s that saddled insurers with big charges to boost their claims reserves.
Lines still showing steep increases include workers' compensation insurance--rates jumped 28% in the fourth quarter, though down from a peak year-over-year increase of 35% at the end of 2002, according to Advisen.
Rates for directors and officers insurance, which pays litigation costs when company officials are sued during the course of their duties, rose 17% year-over-year in the fourth quarter, down from a nearly threefold jump in the first quarter of last year. Amid a rash of corporate scandals and accounting blow-ups, the line has seen some of the steepest rate increases over the past three years. Fiduciary-liability rates, likely affected by continuing mutual-fund trading scandals, rose 67% in the fourth quarter from a year earlier.
While many insurers are in better financial shape as a result of the recent price increases, few analysts expect rates to fall sharply across the board anytime soon.
Many analysts believe prices will continue rising in most lines faster than the rate at which claim costs rise. While casualty insurance rates probably will reach a peak this year, "it will still be an attractive market [for insurers] in 2005, albeit a slightly less profitable one," said Mark Puccia, Standard & Poor's managing director for financial-services ratings.
Some insurance executives maintain the industry has little choice but to try to keep rates high. With interest rates at low levels, insurers can't count on strong investment returns to make up for any underpricing, said Mark Lescault, chief underwriting officer for Swiss Re's Americas division.
