After Months of Slow and Steady Rate Moderation, Composite Rate for December 2014 is Flat

Soft Market Cycle Expected to Start in Early 2015

"We are on the cusp of a soft market," noted Richard Kerr, CEO of MarketScout. "Throughout 2014, the composite P&C rate slowly drifted towards renewing as expiring and in December we finally hit that mark. Historically, the move to softer rates is in line with prior market cycles. We began tracking commercial P&C insurance rates in July 2001, in the midst of a hard market cycle that ended 43 months later, in February 2005. In March 2005, the market turned soft, registering the first composite premium reduction at minus 1 percent. That soft market cycle lasted until August 2011, 78 months - six and half years. In November 2011, we entered another market cycle of increasing premium rates. The rate increases were not as dramatic in prior cycles; they were steady and sensible. After 37 months, the rate increases appear to be over. The next soft market will start as soon as a composite rate decrease is measured. We expect the beginning of the next soft market cycle to be in early 2015."

Trying to determine the length of market cycles is like forecasting interest rates, but Kerr explained, "It's coming - and soon. We don't expect the aggressive pricing which occurred in the last soft market cycle of 2006 to 2011, nor do we expect another 70 month cycle; however, smart companies will be prepared for a changing rate environment. If you budgeted for increases in rates in 2015, you best change that portion of your business plan now. We suggest planning for slight rate decreases beginning at the end of the first quarter and slowly increasing to a reduction of 4 to 5 percent by the end of 2015. The good news is the rate decreases should be largely offset by increased exposures related to economic growth in 2015. Insurers will be covering greater exposures, so the benefit for them may be offset by more claims. Intermediaries will enjoy increased revenues as their insureds grow. This additional revenue will help balance out the revenue reduction as a result of lower rates."

By coverage classification, rates for all coverages were down 1 percent with the exception of EPLI, which remained at plus 2 percent and commercial property and auto, which were down 2%. As measured by account size, medium and large accounts adjusted down 1 percent and 0 percent or flat respectively. By industry class, all were down 1 percent from last month with the exception of transportation, which was down 2 percent.

The National Alliance for Insurance Education and Research conducted pricing surveys used in MarketScout's analysis of market conditions. These surveys help to further corroborate MarketScout's actual findings, mathematically driven by new and renewal placements across the United States.

A summary of the December 2014 rates by coverage, industry class and account size is set forth below.

By Coverage Class

Commercial Property

Up 0%

Business Interruption

Up 0%

BOP

Up 1%

Inland Marine

Up 0%

General Liability

Up 1%

Umbrella/Excess

Up 1%

Commercial Auto

Up 1%

Workers' Compensation

Up 0%

Professional Liability

Up 1%

D&O Liability

Up 1%

EPLI

Up 2%

Fiduciary

Up 0%

Crime

Up 0%

Surety

Up 0%

 
 Click image to enlarge

 

By Account Size

Small Accounts

Up 2%

Up to $25,000

Medium Accounts

Up 1%

$25,001 - $250,000

Large Accounts

Up 0%

$250,001 - $1 million

Jumbo Accounts

Up 0%

Over $1 million

 
Click image to enlarge

 

By Industry Class

Manufacturing

Up 0%

Contracting

Up 1%

Service

Up 1%

Habitational

Up 0%

Public Entity

Up 0%

Transportation

Up 1%

Energy

Up 1%

 
Click image to enlarge

 

For detailed rating analysis or market projections by industry class, coverage or account size, contact Vilma Scott at vscott@marketscout.com.


About MarketScout

MarketScout, an insurance distribution and underwriting company headquartered in Dallas, compiles the Commercial and Personal Lines Market Barometers. The firm owns and operates the MarketScout Exchange at marketscout.com as well as over 40 other online and traditional underwriting and distribution venues. MarketScout founded the Entrepreneurial Insurance Alliance (EIA) in 2009. In 2012, MarketScout founded the Council for Insuring Private Clients (CIPC). MarketScout has offices in Dallas, California, Connecticut, Florida, Illinois, Indiana, Michigan, Nebraska, New Jersey, Rhode Island, Texas and Washington, D.C.

 

 

The composite market conditions from 2001 to 2014 are set forth below.

 

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