After months of steady but slow moderation, composite rates in the property/casualty insurance industry were flat last month, a pattern that is expected to slow into a soft market in 2015.
The decrease in composite P/C rate is in line with prior market cycles, says managing underwriter MarketScout, which tracks market rate changes each month. The previous soft market cycle lasted until August 2011, ending in November 2011 when the market entered another period of rising premium rates.
Rates for all coverages were down 1% in December, with the exception of EPLI, which remained at plus 2%, and commercial property and auto, down 2%. Medium and large accounts adjusted down 1% or remained flat at 0%, and by industry class, all were down 1% from the past month with the exception of transportation—down 2%.
“After 37 months, the rate increases appear to be over,” said MarketScout CEO Richard Kerr. “The next soft market will start as soon as the composite rate decrease is measured. We are on the cusp of a soft market.
“We expect the beginning of the next soft market cycle to be in early 2015.”
Though owning that determining the length of market cycles is “like forecasting interest rates,” Kerr says MarketScout does not expect the aggressive pricing last seen prior to the Great Recession, nor does the group expect another 70-month cycle.
“However, smart companies will be prepared for a changing rate environment,” Kerr said. “If you budgeted for increases in rates in 2015, you best change that portion of your business plan now.”
The rate decreases are expected to be offset by the positive economic forecast for the year, which will see increased exposures and more appetite among insurers. Intermediaries, such as independent agents and brokers, are also expected to “enjoy increased revenues as their insureds grow,” said the company.
MarketScout’s analysis is fueled by pricing surveys conducted by the National Alliance for Insurance Education and Research.
