Property/Casualty Marketplace to Remain Soft in 2008, Watson Wyatt Worldwide Says
WASHINGTON, November 15, 2007 – The market for property and casualty insurance will stay soft in 2008, as premiums are expected to either decline or remain flat, according to actuarial and risk management experts at Watson Wyatt Worldwide, a leading global consulting firm. Additionally, insured companies may see enhancements in some coverage, particularly for directors’ and officers’ liability insurance, and can expect this trend to continue.
“Rate decreases will be the rule for casualty insurance coverage next year,” said Orin Linden, property and casualty practice leader of Watson Wyatt’s insurance and financial services consulting group in New York. “Strong competition and healthy capacity are forcing insurance companies to lower their premiums or, at the very least, hold them stable. It’s clearly a buyer’s market.”
Rates for casualty insurance coverage may decline as much as 5 percent to 10 percent next year, and rates for property insurance coverage will be mostly flat, although some buyers may see a slight reduction. Rates have declined in each of the last few years for both property and casualty insurance coverage as the industry is going through a period of strong profitability, said Linden.
Other segments in the insurance industry — including workers’ compensation, directors’ and officers’ liability, and reinsurance — are also expected to experience soft market conditions, according to Steve Lawrence, a property and casualty senior consultant with Watson Wyatt.
Rates for workers’ compensation will be relatively stable as the market remains soft and companies continue to experience strong profitability. “We are expecting to see rates remain unchanged or perhaps decline as much as five percent,” said Lawrence.
Lawrence also noted a growing interest among insurers and risk managers in using predictive modeling software. In particular, insurers are applying the techniques they use for personal auto to workers’ compensation. This helps risk managers identify potential problems with workers’ compensation claims earlier in the process and allows them to implement a settlement strategy to reduce their cost. “Large companies with high volumes of workers’ compensation claims are especially drawn to predictive modeling,” said Lawrence.
“With the marketplace showing little sign of hardening, it may be an ideal time for buyers to review their risk management program structure and insurance policies,” Linden said. “This will help them decide if key program parameters should remain intact or if alternative risk management solutions, such as insurance captives, should be considered.”
“Buyers clearly get better terms in softening markets. However, they need to be well-positioned so that when the market firms up, they have a plan to move forward.”
Linden and Lawrence also suggested that buyers who are considering switching carriers should analyze the carrier’s long-term credit rating, since many claims may not be paid out for another six to 10 years.
About Watson Wyatt Worldwide
Watson Wyatt (NYSE: WW) is the trusted business partner to the world’s leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,000 associates in 31 countries and is located on the Web at www.watsonwyatt.com.
