There has been much talk about the coming (imminent) hard market, led by public financial institution directors & officers (D&O) liability insurance (see prior post). It is nowhere in sight. Except for a few select segments, competition continues, rates are flat or down, and insurer marketing reps continue to press for more business.
Willis recently published a report confirming this, and suggesting that a hard market was not just around the corner. The report, Marketplace Realities & Risk Management Solutions: A Different Kind of Cat – Spring Update (see here, here, here & here), notes three factors for a continuing competitive environment:
- Prior years’ results have produced significant surplus, so the industry is well capitalized
- Competition, sparked by new entrants
- Competition from and with AIG
Their comment on AIG is important. While there have been reports (accusations?) about AIG aggressively cutting prices to retain business in the face of not so positive press, the report suggests that competing insurers have tried to use the situation to their advantage and have been aggressively targeting AIG business. The result: both AIG and their competitors are driving pricing down.
- Despite a premium price increase push by insurers, rates remain competitive, especially for new accounts with good risk profiles
- [Executives] described an insurance environment nationally that continued to see premium rates that are flat to down[ and…] very few lines that exhibited any signs of premium increases anywhere throughout the country.
The Willis report noted that insurance buyer’s perspectives have changed, and that we can expect more diversification and an effort to mitigate counterparty risk.
The world has changed. The giants are vulnerable. Putting too many eggs in one basket is dangerous – no matter who’s holding the basket. In the short run, the push for diversification stirring up the marketplace may encourage competition. In the long run, however, we see the potential for a change in the way buyers and sellers interact in the insurance marketplace. Hard market or soft, we believe that buyers are more than ever looking beyond price and investigating the strength behind – the foundation beneath – the insurers they may want to buy from.
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