Annual Publication Shows Dramatic Shifts in Hard Market Conditions
As Industry Emerges from 9/11 and Corporate Scandals to More Efficient Market
NEW YORK, March 8, 2004 – Commercial insurance buyers experienced a turbulent past year as the hard market reached its peak and then began its current softening trend, according to the annual market survey from the Risk and Insurance Management Society (RIMS), which was released this week as a printed companion to the online RIMS Benchmark Survey. The survey suggests that dramatic price swings, the lingering effects of human-engineered catastrophes like terrorism and corporate scandal, the demise of venerable industry names and the continued rise of non-traditional insurance products and markets all characterized the year’s tumult, which, in the end, may ultimately benefit risk managers.
In the Society’s annual summary of market conditions, the 2003 RIMS Benchmark Survey, risk managers representing nearly 1000 companies offer statistics that recount a year in which the market began to shake off the shock of seminal events over the last two years, such as 9/11 and Enron, and transform itself into what is likely to be a much more efficient market. While premiums have risen in every line, the Survey highlights developments that are increasing competition: billions of dollars in new capital, the emergence of Bermuda as a major center of international risk capacity, the continued globalization of the insurance industry, and the increasingly prominent role of captives and alternative risk transfer mechanisms. Buyers have new sources of capacity and much more flexibility in financing risk, suggesting that future insurance cycles may be shorter and shallower. The most current pricing data implies that the hard market, which has been in full swing only since late 2001, is losing steam.
The Survey results and the annual publication were produced by Advisen, a provider of specialized information, and analytic and benchmarking tools for commercial insurance professionals, which examines the Survey results continuously over the year. Advisen also offers a dynamic and virtually real-time window into the on-going purchase patterns of commercial insurance buyers through an online subscription service and issues quarterly summaries of market conditions derived from that data.
“This has been a watershed year both for the Benchmark Survey and for the industry, as we have been able to watch events develop into trends over the year and now we have a well-framed picture of a volatile but increasingly efficient marketplace,” said Christopher Mandel, RIMS Vice President, Chief Risk Officer and Secretary. “As we emerge from the hardest market in memory for most risk managers, the Survey provides a context to assess the impact of key developments in the industry.”
Most of the trends and developments captured by the Survey cast new light on the well-reported issues of rising insurance costs of the last year. Premiums have increased in every line and for every industry, but each line of business has experienced periods of stabilizing, or even slightly declining, rates. Likewise, while retentions have been growing on average, as expected in response to rising rates, most buyers have held even and a few have decreased the amount of risk they keep. In short, the insurance industry has been deep into a hard market, but it has been a hard market full of contradictions and uncertainty, according to the Survey, and all indications are that the hard market is on its last legs.
“The market clearly is emerging from the `hard’ phase of the cycle, and a wide array of economic, social, psychological and political forces are jockeying to control the overall direction and magnitude of change,” states David Bradford, chief knowledge officer at Advisen and an author of the Survey overview.
The Survey further offers that the collective effect of the market tumult may ironically benefit insurance buyers over time, since the forces of change have necessitated greater reliance on more and better options for managing, transferring and financing risk.
“The heightened efficiency of the insurance market and the increased availability of options to traditional insurance likely will translate into insurance cycles that are shorter and shallower,” Bradford contends.
“The nature of contemporary insurance is forcing risk managers, brokers and insurers to understand and respond to a more dynamic and fluid market, and the annual Survey results reflect both that new nature and the industry’s response to it,” said Tom Ruggieri, CEO of Advisen. “The issue now has become how do professionals become proactive and leverage tools, like the data we are gathering continuously, to drive the market, instead of being driven by it.”
About The Benchmark Survey
Participants who contribute insurance schedule data to the Survey can utilize “Chart-Your-Program” software to create charts and schedules of insurance programs and interactively compare their data with prior years’ Survey data. Additionally, participants can use interactive benchmarking tools to compare costs and programs against continuously updated marketplace data.
The Risk and Insurance Management Society, Inc. (RIMS) is a not-for-profit organization dedicated to advancing the practice of risk management, a professional discipline that protects physical, financial and human resources. Founded in 1950, RIMS represents nearly 4,000 industrial, service, nonprofit, charitable, and governmental entities. The Society serves 8,000 risk management professionals around the world.
Advisen Ltd. offers strategic information services to the global commercial insurance industry, combining comprehensive market data with proprietary analytic and benchmark modeling software. Advisen serves the world’s leading insurance companies, brokers and risk managers by providing a systematic perspective on writing, marketing and purchasing lines of commercial insurance.
