RIMS Survey: Premium Price Drop Continuing

Average premiums for all major commercial lines of insurance continued to fall in the second quarter, according to the RIMS Benchmark Survey released today.

And, “it is still very much a buyer’s market, and should remain so, at least through 2008,” according to officials at Advisen, which produces the survey for the Risk and Insurance Management Society.

The 6.1 percent decrease in premiums for property insurance essentially repeated first-quarter price decreases for renewals, even though forecasters now predict a severe hurricane, Advisen officials said.

In general, “insurers’ net profit plunged in the first quarter, due largely to falling rate levels,” said David Bradford, editor-in-chief of Advisen.

“But the property and casualty industry is still overcapitalized, which continues to put downward pressure on premiums,” he said.

The decrease in average general liability premium was nearly 5 percent, up from 2 percent in the first quarter. After an unexpected 11 percent drop in the first quarter, the average workers’ compensation premium fell just 1.7 percent in the second quarter, Mr. Bradford said.

He said this was not evidence of a trend; the rates just fluctuate from quarter to quarter.

Even the average directors and officers liability insurance premium fell a comparatively moderate 6.4 percent in the second quarter after dropping sharply in the first quarter, according to the study.

That occurred even though losses from the subprime debacle are expected to cost directors and officers liability insurers an estimated $3.6 billion loss claims over three years, Mr. Bradford said.

The survey is produced by Advisen, Ltd., which collects and analyzes the data and provides the technology infrastructure for the survey’s online services.

Mr. Bradford said that only financial and real estate firms with subprime exposure have experienced price increases, and these on a risk-by-risk basis.

D&O coverage costs have been falling “vigorously since the beginning of 2004” due to the huge money flow into the market because of its relatively low risk, he said.

Moreover, he added, despite the losses, the industry will break even because the cost will be spread between 2007 and into 2009. And that does not take into account the time value of money.

The reason prices are falling, he said, is because the industry has not suffered major losses since the problems of Enron and Worldcom in the early part of the century.