After 12 years, it is not a cycle. For those who can remember back when past cycles ran a course of three to five years, you could almost set your watch by that criterion. Now we know that cycles last at least 12 years, and no one is seriously talking about the market "tightening" for at least 12 to 18 months, if at all.
Capacity is an all-time high. Capital still is in plentiful supply. The stock market is not as favorable as early in the year, but the Fed has trimmed interest rates and the Asian crisis is subsiding for now. Major catastrophic losses, including Hurricane Georges--which will account for an estimated total of $2.5billion in claims--have been confined to narrow geographic areas. Georges will have an impact in four states, with companies which write property in Puerto Rico and the Virgin Islands experiencing the largest losses. Only about $750 million to $800 million of the estimated losses from Georges are slated to be paid in the four U.S. states. Combined loss ratios for U.S. companies in 1998 are anticipated to be about 105% to 106%, which is up from a year ago.
Insurers, both foreign and domestic, are actively looking for new programs that make good business sense. New products in the weather niche are expanding to address not only event cancellation and prize guarantees but corporations' bottom-line dollars. If products cannot be shipped in a certain time frame due to weather-related delays, insurance programs can address financial loss. Many creative scenarios can be employed to benefit commercial clients.
Professional liability--including EPLI, D&O, and E&O--continues to be boosted by education and litigation. Pricing is very competitive as more carriers enter the market. Excess liability limits with U.S. carriers will vary with the class of business. Some are possibly overly aggressive in establishing rates, but that can change very quickly. Limits of $200 million are not uncommon in some cases.
Property rates, except in coastal areas, are running as soft as general liability. Results of weather-related claims, available late in 1998, may affect that picture.
Although Y2K loss experience won't be apparent for some time, the next 12 months are critical in minimizing potential catastrophes. Opinions about Y2K vary widely as to where liability lies and how serious losses will be. One contention is that it is not a named peril so it cannot be excluded since it wasn't covered in the policy to begin with. Most state insurance departments are not approving blanket exclusions but are requiring companies to be more specific in their exclusion wording.
Although Y2K loss experience won't be apparent for some time, the next 12 months are critical in minimizing potential catastrophes.
Insurers are offering stand-alone policies for Y2K liability which attach conditions such as:
* directors and officers are not insureds
* business income must be purchased with general liability
* co-insurance clauses exist on G.L. and business income, and separate limits apply on each
Professional liability will be an extremely important part of the package especially if your insured is a vendor supplying solutions and equipment. Look for policies with outside limits on defense cost because the courts will spend a lot of time "settling claims." Regardless of where coverage is found, don't let coverage for this exposure depend on your E&O policy. You must address this issue with almost every client, and if a client declines to purchase coverage it would be prudent to record that declination in writing.
A positive indication about the market is the availability of programs and products. The 36th edition of The Insurance Marketplace, the Rough Notes Company's excess, surplus and specialty lines directory, which accompanies this issue of Rough Notes includes a record 623 listings of insurance coverages and programs. This year 341 participating insurance companies, MGAs, program administrators and other markets are listed. This is up from 285 in 1998's directory. It includes 108 new listees.
New categories for this year are Agency Services, Home Inspectors E&O, and Apartment Buildings/Senior Subsidized Housing. Some of the fastest growing listing topics are Sports and Entertainment, Social Services Agencies, Professional Liability, Transportation Risks and International Risks. This includes existing markets adding to their portfolio and newly developed programs for specific classes of business. Information concerning markets and descriptions of products also can be accessed at the Rough Notes Web site (www://roughnotes.com). Click on The Insurance Marketplace, select the coverage of interest, then go to the respective state in question for detailed information.
The increased activity indicated by the growth of listings in The Insurance Marketplace demonstrates not only that the market is competitive but also that there are new opportunities for aggressive agents who want to take advantage of the market.
Standard carriers continue to move into areas that were addressed only by the E&S market in the past. This has resulted in low or negative growth in E&S premium volume in recent years. The growth of alternative markets and the fact that insureds are electing higher SIRs or total self-insurance contribute to this leveling off of premiums. If any hardening of the market were to occur, a portion of "main street" carriers would retreat to their core business, and the E&S markets would be the beneficiaries of premium increases.
Downsizing, cost control, bottom line management or other terms that describe most corporate strategies today have eliminated or severely diminished services such as loss control, safety inspections and claim services. Agents and brokers should search for markets that provide some or all of these benefits for their clients, in addition to price and coverages. In some cases this can be the deciding factor in obtaining or retaining an account. Anyone can present a price.
As was apparent at the most recent IIAA national convention, companies are actively seeking both new and existing business from agents. More elaborate displays not usually seen at a two-day exhibit were noticeable. Companies never before participating were in attendance. Markets for tire retreaders, broadcasters, powersports dealers, sports and entertainment, and nonprofit organizations were some of the specialty products presented. It was not just BOPs and family auto.
Mergers and acquisitions, HR 10, catastrophic losses, Y2K, pricing, and the performance of the stock market are all factors that can affect your book of business in the coming year. Next year will bring some of the same problems and a couple of ones we don't know about now. Our industry is made up of professionals and we not only survive but grow. Hey, if it were easy, your next door neighbor would be doing it. *
©COPYRIGHT: The Rough Notes Magazine, 1998