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Current State of Insurance Marketplace 2012

03 Feb

With worsening results of profitability in the P & C sector in the US insurance marketplace for the past several years the industry has been in what can be described as a state of suspended animation.

As of January this year, the majority of industry leaders believe that the market is now in the beginning stages of a hard market.  A survey conducted by the Insurance Information Institute (www.iii.org) at the 16th annual Property/Casualty Insurance Joint Industry Forum revealed the opinions of some 260 insurance executives regarding the following:

  • 63 percent of respondents believe there will be an improvement in personal auto and 67 percent expect an improvement in homeowners
  • 72 percent of respondents expect an improvement in commercial lines
  • 55 percent do not expect an improvement in workers compensation.
  • 67% believe that premium growth will be higher;
  • 78% expect an improvement in profitability in 2012

The majority of reinsurance treaties renewed January, 1st and in certain areas, such as catastrophic loss, those reinsurance rates increased significantly.  As often happens, those additional business expenses are slowly trickling down to the insurance buyer in some areas of the insurance market.  The market appears to be reacting as it often does with some fragmentation and volatility; some mid-market and large accounts are seeing property rate increases while the smaller accounts have seen only slight increases in pricing.  Poor returns on investments and continuing large catastrophic losses have also had their impact on the current market.

What is striking is that within three months, insurance executives opinions have changed from 87% believing that the market is soft or at the bottom of the cycle, to 78% today believing that we are at the point of price increases.

So the soft market cycle that we have been in since 2006 seems to shifting and entering a new phase.  Could it really be the return of a “hard market”?  As is often the case, you will know it when you see it, but all indications are present.

What does this mean to you and your client?  Well, more revenue for you, but your clients deserve a heads up, particularly if they are in the manufacturing, wholesale, retail or construction business as future contracts need to be written to include the higher cost of insurance.  The previous hard market came at a time when the overall economic outlook was not as grim, so this may be a very hard pill to swallow for some of your clients.

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