December signals signs of an imminent soft market says MarketScout
Bucking months of slow and steady rate moderation, the composite rate for December is flat, says Dallas-based MarketScout, which issues a monthly report on both the Commercial and Peronal Lines Rate Trends.
“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.”
The December numbers by Coverage Class
Rates for all coverage classes were down a percent in December, except for EPLI which remained static at 2 percent and commercial property and auto which saw a two percent decrease.
| By Coverage Class | December 2014 Rates | November 2014 Rates | October 2014 Rates | September 2014 Rates |
| Commercial Property | Up 0% | Up 2% | Up 1% | Up 2% |
| Business Interruption | Up 0% | Up 1% | Up 1% | Up 1% |
| BOP | Up 1% | Up 2% | Up 2% | Up 2% |
| Inland Marine | Up 0% | Up 1% | Up 1% | Up 1% |
| General Liability | Up 1% | Up 2% | Up 2% | Up 2% |
| Umbrella/Excess | Up 1% | Up 2% | Up 2% | Up 2% |
| Commercial Auto | Up 1% | Up 3% | Up 3% | Up 2% |
| Workers’ Compensation | Up 0% | Up 1% | Up 1% | Up 2% |
| Professional Liability | Up 1% | Up 2% | Up 2% | Up 1% |
| D&O Liability | Up 1% | Up 2% | Up 2% | Up 2% |
| EPLI | Up 2% | Up 2% | Up 2% | Up 2% |
| Fiduciary | Up 0% | Up 1% | Up 1% | Up 1% |
| Crime | Up 0% | Up 1% | Up 1% | Up 1% |
| Surety | Up 0% | Up 1% | Up 1% |
The December numbers by Account Size
| By Account Size | December 2014 | November 2014 | October 2014 | September 2014 |
| Small Accounts (Up to $25,000) | Up 2% | Up 2% | Up 2% | Up 3% |
| Medium Accounts ($25,001 – $250,000) | Up 1% | Up 2% | Up 2% | Up 2% |
| Large Accounts ($250,001 – $1 million) | Up 0% | Up 2% | Up 1% | Up 1% |
| Jumbo Accounts (Over $1 million) | Up 0% | Up 0% | Up 0% | Up 0% |
The December Numbers by Industry Class
| By Industry Class | December 2014 | November 2014 | October 2014 | September 2014 |
| Manufacturing | Up 0% | Up 1% | Up 2% | Up 1% |
| Contracting | Up 1% | Up 2% | Up 3% | Up 4% |
| Service | Up 1% | Up 2% | Up 1% | Up 2% |
| Habitational | Up 0% | Up 1% | Up 1% | Up 1% |
| Public Entity | Up 0% | Up 1% | Up 1% | Up 1% |
| Transportation | Up 1% | Up 3% | Up 2% | Up 3% |
| Energy | Up 1% | Up 2% | Up 2% | Up 1% |
