Rates dropping

The annual benchmark survey, commissioned by the Risk and Insurance Management Society (RIMS) and conducted among corporate risk managers by analysts from Advisen, showed that last year rates for liability lines, particularly directors' and officers' (D&O) and workers' compensation lines dropped 5.1% and 7.4% respectively.

"Competition has been spurred in the workers' compensation line of business due to reform measures passed in several large states," the RIMS report noted and BMS believes that this year is likely to be little different. 2007 has started off with underwriters cutting rates in every single line of coverage. Many wholesalers and surplus lines insurers have lost business to aggressive admitted markets as they cut pricing and expanded class codes.

While falling prices are good news for insurers, the trend cannot be expected to last much longer. With medical costs (the major driver in workers' compensation) continuing to increase at a higher rate than inflation, and further strengthening of past incurred loss reserves required, we expect the downward pressure on rates to diminish.

Longer term, however, depending on the impact of reform in California and Florida, other states may adopt similar legal packages which will place downward pressure on pricing.