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Insurance Prices to Fall in '08

Source:ap.org Author:Unknown Date:03/25/14 Click:

Insurance Prices Seen Lower in 2008 on Competition, Sagging Economy

CHICAGO (AP) -- Prices for most types of property and casualty insurance are expected to fall in 2008 for the first time since World War II, as a weakening economy and heightened competition hold prices down everywhere except along coastal areas that are exposed to hurricanes.

A survey conducted by the Insurance Information Institute of insurance researchers and analysts estimates that overall property/casualty premiums will ease 0.3 percent next year. Premium growth this year is expected to be flat, according to the survey results released Monday.

According to the insurance group, the main factors behind the falling prices include government-provided reinsurance, which depresses the private market; the growing popularity of catastrophe bonds; a trend towards self-insurance; and ongoing competition among insurers, particularly in lines such as auto insurance.

Even though premium growth has slowed considerably over the last few years, insurers overall have remained profitable, and profitability should continue into 2008 with an expected overall industry combined ratio of 97.3 percent, according to the survey. The combined ratio represents the amount of each premium dollar collected that is spent on claims and expenses.

In recent quarters, several insurers, including auto insurer Progressive Corp. , have said they are aiming for a combined ratio of 96 percent, better than many insurers reported in the most recent quarter.

Donald Light, a senior analyst with research group Celent LLC, said the industry's strong performance over the last two years would probably allow many insurers to cut prices for some time before profitability became an issue.

"At some point, the return on equity will become less attractive and some capital might leave the industry, which could firm prices," Light said in a recent interview. "The soft market will continue until investors or even ratings agencies say this is not such a great industry anymore. That might turn the market."

In a November report, Standard and Poor's warned that intense rate competition was on the verge of squeezing profit margins for insurers, particularly for auto insurance.

S&P's forecast for 2008 called for healthy insurance profitability "as long as catastrophe losses remain normal." Longer term, the sustainability of earnings and returns is more of a question, the agency said.

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