Consulting firm expects soft ’08 market for P&C

The market for property and casualty insurance will stay soft in 2008, with premiums expected to either decline or remain flat, according to statements released this month by a global consulting firm.
In a news release, actuarial and risk management experts at Watson Wyatt Worldwide also said that they expect insured companies may see enhancements in some coverage, particularly for directors’ and officers’ liability insurance. The trend should continue, Watson Wyatt said.
“Rate decreases will be the rule for casualty insurance coverage next year,” said Orin Linden, property and casualty practice leader of Watson Wyatt’s insurance and financial services consulting group in New York. “Strong competition and healthy capacity are forcing insurance companies to lower their premiums or, at the very least, hold them stable. It’s clearly a buyer’s market.”
The release said that rates for casualty insurance could decline as much as 5 to 10 percent in 2008, while property insurance rates will remain mostly flat. However, some buyers could see a slight reduction in their rates.
Rates have declined in each of the last few years for both property and casualty insurance coverage as the industry goes through a period of strong profitability, Linden said.
Other segments in the insurance industry – including workers’ compensation, directors’ and officers’ liability, and reinsurance – are also expected to experience soft market conditions, according to Steve Lawrence, a property and casualty senior consultant with Watson Wyatt. Rates for workers’ compensation will be relatively stable as the market remains soft and companies continue to experience strong profitability.
“We are expecting to see rates remain unchanged or perhaps decline as much as 5 percent,” Lawrence said.
Lawrence also made note of a growing interest among insurers and risk managers in using predictive modeling software. In particular, insurers are applying the techniques they use for personal auto to workers’ compensation. He said that the use of the software helps risk managers identify potential problems with workers’ compensation claims earlier in the process and allows them to implement a settlement strategy to reduce their cost.
“Large companies with high volumes of workers’ compensation claims are especially drawn to predictive modeling,” said Lawrence.
“With the marketplace showing little sign of hardening, it may be an ideal time for buyers to review their risk management program structure and insurance policies,” Linden said. “This will help them decide if key program parameters should remain intact or if alternative risk management solutions, such as insurance captives, should be considered.”
“Buyers clearly get better terms in softening markets. However, they need to be well-positioned so that when the market firms up, they have a plan to move forward,” Linden added.
Linden and Lawrence also suggested that buyers who are considering switching carriers should analyze the carrier’s long-term credit rating, since many claims may not be paid out for another six to 10 years. •