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Friday July 16, 05:21
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Insurance Rates Drop in Second Quarter
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After several years of soaring prices, a majority of businesses are beginning to pay less for insurance, according to an industrywide survey released on Thursday by the Risk and Insurance Management Society.
Nearly two-thirds of domestic property and casualty insurance policies placed in the second quarter were either priced lower by an average of 18 percent, or the cost was unchanged, the survey said.
Even the cost of directors and officers liability insurance, which spiked as scandals swept through corporate America, was flat or declined by an average of 16 percent on 61 percent of policies renewed in the second quarter.
But 50 percent of workers’ compensation policies were priced higher by an average of 14 percent.
"Clearly, when 100 risk managers go into the market and 50 come back with a significantly better priced deal than the one they had last year, that means we are starting to experience a turn in the market from the past several years of large price increases ," said Daniel H. Kugler, a vice president at RIMS, in a statement.
On average, directors and officers premium prices were about flat, property and rates were down 1 percent and general liability rates decreased 2 percent. Workers’ compensation insurance was 1.4 percent higher.
Insurance companies typically have two sources of income: underwriting and investments. When insurance prices decline, companies depend on investment income to pick up the slack.
During the 1990s, a price war led to plummeting insurance rates, but commercial rates soared after the Sept. 11 attacks.
"I don’t think anybody is going to be hurting for a couple of years, but I don’t think the industry is positioned to be able to sustain a prolonged period of rate-cutting," said David Bradford of Advisen, which published the survey for RIMS.
Bradford added that, "the investment income doesn’t look like it’s going to be anything near what propped up the soft market of the 1990s."
He said that some companies may feel a cash crunch in the coming years, especially those who haven’t adequately boosted their reserves to cover such issues as asbestos.
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