Competition Drives Liability, Excess Casualty

 

Thursday, Jul 09,2009, 12:17:39 PM   Click:

While four years of significant declines in subscription rates and poor results suggest that companies no longer pay for their general liability and excess loss of coverage of the renewal period, the market has not turned insurers and brokers say.

Despite the desire and a need among insurers to increase rates, the forces are maintaining stable and attractive risk are given double-digit declines, they say. Coupled with a sour economy that is reducing the risks insured, most risk managers are seeing their premiums decrease in some cases significantly.

If the economy isn't keeping costs at bay, risk managers are doing their part by shopping their programs for better deals or restructuring their programs to save money, market experts say.

``It's interesting. There was a lot of talk that the market had turned, that the market was hard and that substantial increases were the norm, but it seems that the economic fundamentals didn't support that,'' said Mike Thoits, vp-risk management for Affinia Group Inc., an aftermarket parts and services supplier, in Ann Arbor, Mich. ``While there may have been a reduction in the rate of decrease…in our experience it wasn't a hard market,'' he said, noting that Affinia's general liability and excess casualty premiums had double-digit declines at his June 1 renewal.

``We actually met with all the underwriters that are on the account and others looking to be on the account back in February and they were giving indications of possible 5% to 10% increases in rate,'' said Mike Klawitter, director of risk management at the Anchorage School District in Anchorage, Alaska. ``But when it came to putting their numbers on the table (at the school district's July 1 renewals), they were pretty well flat,'' he said.


Underwriters and brokers say an abundance of capacity coupled with increased competition is keeping the market from turning.

Last November and December, ``there was definitely a firming in the market with rate increases starting to build and there were very few rate decreases,'' said Joseph Harris, chief underwriter for primary casualty in the Americas for XL Insurance in New York. But in the past month or so, the competition has increased, he said.

``There's in the market a need and a wish to start taking rates up and many of our competitors, including XL, are trying to do that where it makes sense,'' Mr. Harris said. But ``there are a few competitors that, for whatever reason, seem to be somewhat aggressive and are holding the market back a bit.''

``We're seeing people do things that don't make a lot of sense and will not stand the test of time,'' Mr. Harris said, declining to name the underwriters. ``I think smart underwriters that have experience in this business understand that prices, generally speaking, need to start moving upward. When that actually occurs, I don't know. I'd like to think it happens third or fourth quarter. But who can say?''

On the excess side, ``there's an abundant amount of capacity on most risks,'' said Tom Martin, managing director in the excess casualty placement group at Marsh Inc. in New York. ``Part of the reason is that the new capacity that entered the (excess casualty) market last fall, particularly in Bermuda, had the unintended effect of keeping rates stable,'' he said.

``It's been our experience on the renewals that we're involved with now that a thorough marketing effort does result in some modest rate reductions,'' Mr. Martin said. So rate decreases ``are still achievable, but generally the market is flat on rate.''

``I think the market in general is still pretty squishy,'' said David Price, executive vp and chief underwriting officer for Burns & Wilcox Ltd. in Farmington Hills, Mich. ``Our small general liability books are really pretty stable. If we reduce rate by 2% to 3%, I'd be surprised,'' he said. With larger risks, however, ``what we're seeing is (insurance) companies fighting for their market share.''

Karen Walsh, Chicago-based chief underwriting officer for the western region of Liberty Mutual Insurance Group's national markets, said general liability rates are ``teetering to go up.''

``It's a strange market today,'' Ms. Walsh said. ``With all the different signs out there, fundamentally you'd say it's a hard market, period. It hasn't completely turned to that, but it's moving towards that.''

But more than competition is affecting general liability and excess casualty pricing. Given the economy, risk managers are doing what they can to cap insurance costs.

``There's a lot of movement (of business) in the marketplace,'' said Eric Silverstein, managing director and casualty practice leader for Beecher Carlson in Atlanta. Insurance buyers are more willing to look at new providers and, given the ``great deal'' of underwriting talent that has moved, clients are more willing to move their accounts, he said.

``Everybody's got pressure to keep costs for casualty insurance down,'' said Jim Mathewson, a senior vp with Lockton Cos. L.L.C. in Kansas City, Mo. Clients are either marketing their programs to try to find insurers willing to write their program for less or changing their structure, such as decreasing their limits or increasing their retentions, he said.


``Program structure is definitely being looked at,'' said Tracey Caffrey Ant, a managing director at Marsh USA Inc. Clients are examining guaranteed-cost vs. loss-responsive programs and alternative ways to insure, such as captives, she said.

Underwriters say they also are working with clients on collateral issues.