Commercial Property Rates Dropping: RIMS Survey

Commercial property rates fell 8.8% in the last quarter of 2003, marking the first major rate decline since 2000, according to the quarterly survey by the Risk and Insurance Management Society (RIMS) and Advisen Ltd.

Risk managers report not only are property rates dropping, but, exclusive of inflationary increases, other lines are flattening or experiencing significantly lower increases since the third quarter 2003.

Even troubled directors’ and officers’ (D&O) and excess liability lines are showing signs of future relief in terms of policy count (the number of policies needed to cover a risk) – an indication of growing supply. D&O rates grew 17% in the fourth quarter, compared to 75% in the third quarter. Excess liability rates grew by 12.4% in the fall of 2003, versus 60% over the summer.

“There are still some anomalies, but actual purchase data from risk managers does not lie: price increases have either stabilized or retreated in most lines, and the next few months should make renewals and new placements a bit less challenging than in the past few years,” says Chris Mandel, RIMS vice president, chief risk officer and secretary.

One trouble spot that remains is the fiduciary liability line, where increases held at about 65% throughout 2003.

At the same time, a survey of U.S. agents and brokers shows that one-third of accounts saw either flat or lower premiums in the fourth quarter of 2003. The Council of Insurance Agents and Brokers (CIAB) survey is the latest indication that premium increases are waning heading into 2004.

Another indication of market softening, on accounts which saw rate hikes, those increases ranged between just 1-10%.

The softening was seen regardless of account size with 35% of small accounts, 32% of medium accounts and 38% of large accounts – which had been hardest hit by increases formerly – reporting prices held steady or dropped in the last quarter of 2003.

There were also reports of some loosening of terms and conditions, and several brokers predict that as competition creeps back into the market, underwriting conditions will ease further.

While price relief was seen across multiple lines, a few troublesome areas remain, with construction risks, D&O, broker errors and omissions (E&O) and umbrella coverage being difficult to obtain and expensive. And medical malpractice continues to top the list of coverages subject to hefty price increases.