12/18/2007
Morningstar.com
CHICAGO -(Dow Jones)- Prices for most types of property and
casualty insurance are expected to decline 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% 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%, 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. (PGR), have said they are aiming for a combined
ratio of 96%, 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.
Robert U'Ren, senior vice president of Quality Planning Corp., an
auto insurer research firm, said competition was a big driver of
the rate decreases, and is heating up as insurers look for fresh
ways to win business.
The biggest auto insurers have spearheaded the competition by
aggressive marketing that encourages drivers to shop for prices
more frequently. That trend may see insurers experiment with
technology to make auto insurance price shopping far easier than it
is today.
A big stumbling block for online auto-insurance shoppers is the
tedium of filling out multiple application pages that call for
detailed information on the driver's driving record, vehicles, and
current policy particulars, U'Ren said.
Now, some insurers are experimenting with a system that collects
consumer driving information into one database. The setup allows
shoppers to enter only their name and address at an insurer Web
site. The insurer would then be able to supply driving records,
vehicle information and current insurance-coverage limits, and come
up with an instant price quote.
He said insurers hope to encourage more drivers to shop for a new
insurance policy, but the innovation could have the consequence of
helping to push prices down even further.
-By
Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@ dowjones.com
(END) Dow Jones Newswires 12-18-071034ET .
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