Commercial Insurance Marketplace 2008

Have Commercial Insurance Rates Really Come Down? Rates have decreased significantly on almost all lines with the exception of coverage for coastal properties on the East Coast as well as other catastrophic-type lines of coverage, such as earthquake.

The industry is expected to have earned a significant profit in 2007. Barring catastrophic losses, it is likely that prices will decline further in 2008. The industry looks solid through at least 2008 and probably 2009 as well. Here is what you might expect to see in 2008:

The standard market is generally comprised of those companies that are writing mainstream or preferred business. The standard market remains competitive, and in general preferred risks are seeing premium decreases of 5 percent to 10 percent, and in some cases more.

Property underwriters were hit hard in 2005, and some property risks (predominantly those in the areas subject to wind damage) are still being affected by these losses. If you have a large property schedule, especially if it is in a geographical area subject to wind-driven losses, you should get early estimates and quotations on your property insurance program.

The construction industry is basically split into residential construction and everything else. In the "all other" class, preferred contractors (those that are not doing residential) are following the market in general. It is not uncommon to see preferred risks negotiate premium decreases of 10 percent or more.

Every general liability policy I've reviewed in the last several years for contractors excludes condominium-type projects and, in some cases, residential work in its totality.

Because contractors don't have coverage under their "practice" policies, multifamily housing projects are being built under what are known as "Owner Controlled Insurance Programs" (OCIPs) or "Wrap-Ups." Typically these policies cover the developer, the general contractor and all the subcontractors on a project. On occasion they can be extended to protect design professionals as well. Recognize, however, that OCIPs are general liability policies, and they are not substitutes for professional liability policies.Wrap-ups, like other lines of coverage, are seeing premium decreases and, in some cases, significant premium decreases.

Rates for these types of programs seem to range from 1 percent to 1.5 percent of sales cost for the first $2 million of coverage subject to substantial minimum premiums. The minimum premiums, however, also have dropped significantly in price. Depending on the type of project, it is safe to say that the minimum premiums being offered today are less than half of what they were several years ago.

Professional Liability InsuranceRates are trending down for architects, engineers, attorneys, accountants, and other professionals who purchase coverage for their errors or omissions.

Competition remains robust in the architect and engineering markets. Several new players have entered the game, joining companies that have remained in the market for years. On average, preferred risks can expect premium decreases of 5 percent to 10 percent.

You should be aware that architects and engineers, like contractors, are underwritten very carefully when it comes to multifamily or residential projects. A firm that does too much work in the residential area could be faced with significant premium increases, or lack of coverage. Note as well that new technologies such as building information modeling and project websites are also creating additional exposures for architects and engineers.

Law firms are also experiencing 5-percent to 10-percent premium decreases on their per-attorney costs. Note that those firms specializing in or doing a substantial portion of their work in securities, intellectual property, personal injury, and insurance company defense might see rate increases. Most insurers are holding rates steady for accounting risks, although a handful of companies have dropped rates slightly.

The workers' compensation marketplace, specifically in California, seems to run on its own track. We have addressed workers' compensation in a previous feature within California Builder & Engineer magazine (Editor's note: see January 7, 2008 edition).

While there is a strong possibility that your insurance costs as a percentage of your exposures (payrolls, revenues, property values, etc.) will decrease in 2008, the conservative approach would be to budget for flat pricing.

At a time when rates are decreasing, it is easy to lose focus on your risk management efforts. However, this is not the time to stop investing in risk control programs.