Property-casualty insurers are riding a pricing roller coaster. Some analysts predict economic conditions and technological advances will lead to a “soft landing” from the current underwriting cycle. History says otherwise. Which will it be?
Net written premium growth accelerated from a record-low 1.8 percent in 1998 to 14.3 percent in 2002 and then fell to less than a third of that–4.7 percent–last year. Now rates are falling for virtually all commercial lines. If the pricing roller coaster always followed the same tracks, guessing where prices are headed next would be easy. But it doesn't.
To project market developments, we need to understand what caused the market to start hardening in mid-1999 and why it is softening now. The short answer is the law of supply and demand, but few people understand how that law really works.
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