While insurance brokers say they are starting to detect signs of firming in the commercial insurance marketplace, buyers on average are still seeing premium rates decline. At the same time, some intermediaries expressed concern that the ongoing economic crisis could undercut any benefits they would normally see on their top- and bottom lines once prices do begin to rebound significantly.

One of the earliest warnings on this latter point was issued at the beginning of the year by Brian Duperreault, president and chief executive officer of Marsh & McLennan Companies.

Speaking at the annual joint meeting of the Association of Professional Insurance Women and the New York Chapter of CPCU in early January, he said that while there are indications of hardening in the insurance market, brokers may not necessarily see the usual benefits of it in terms of higher revenue and bigger profits.

“We are in the beginning stages of a hardening market, but countervailing economic forces are turning this into our first 'invisible' hard market,” he told his audience.

“When our market turns, it usually happens very clearly,” he said, adding that “normally, when we stand in the doorway of a hardening market, we know it.” However, other factors, such as the economic crisis, are at work, meaning that brokers “cannot see its normally positive effects for the industry.”

As he explained it, if clients go out of business or contract their operations significantly, even if prices for coverage are rising, the amount of insurable exposure is in decline, offsetting any volume gains from the premium increases. Thus, the “invisible” hard market, since insurers and brokers fail to see growth despite higher rates.

However, if prices do start rising, at least producers and their carriers have a chance to maintain their top lines to offset a shrinking exposure base–although risk managers buying insurance certainly don't welcome higher premiums at a time when their organizations are under pressure to cut costs in a shrinking economy, meaning more commercial buyers will be shopping their coverage at renewal this year.

In January, there were signs that at least supported the impression that the prolonged soft market cycle could be turning a corner.

The quarterly pricing survey of the biggest intermediaries released by the Council of Insurance Agents and Brokers said commercial property-casualty premiums “showed definite signs of leveling off in the fourth quarter of 2008, across small, medium and large accounts.”

By account size, in terms of commission and fees, 80 percent of brokers said small accounts were either unchanged or down 10 percent; while for medium-size accounts, 69 percent said those accounts were flat or down 10 percent. For large accounts, 58 percent of brokers said accounts were flat or down 10 percent or less.

Another gauge of pricing trends, the “Market Barometer” survey–put together by MarketScout, the Dallas-based online insurance exchange–showed a one percentage point dip in the average rate of decline in commercial insurance rates for February from an average 9 percent decrease in rates to an 8 percent decrease–the first such tightening in four months.

However, the most frequent take on the market's direction is uncertainty about the future.

During his report on Willis Group Holdings' fourth-quarter and year-end results, Joseph J. Plumeri, chair and chief executive officer, said that with the uncertainty hanging over the economy, the mega-brokerage would not release earnings guidance for 2009. He did say he was optimistic about the coming year, but it would be difficult to predict future revenue–even in a hardening market–if customers are buying less insurance.

J. Patrick Gallagher Jr., chair, president and CEO of Itasca, Ill.-based Arthur J. Gallagher, said during his firm's conference call with investment analysts that “I believe these are the toughest headwinds we have ever been hit with.”

He predicted that business would be “unbelievably tough in 2009, as customers buy less insurance” thanks to the economic crisis.

J. Hyatt Brown, chairman and CEO of Daytona Beach, Fla.-based Brown & Brown, said the economy was a major question mark affecting insurance placements in 2009. He said some market discipline appeared to be returning to underwriting and prices were firming in some lines.

However, regional companies suffered unexpected catastrophe losses this year, which could cause them to become more conservative in their underwriting.

“Whatever happens, we have to be prepared for it,” Mr. Brown told financial analysts.

(Mr. Duperreault, in his talk earlier this year, also said all bets are off if a major catastrophe strikes, which would likely send prices much higher, much more quickly–particularly for disaster-prone property risks.)

In recent interviews with National Underwriter, several brokers said that while there is a lot of talk about a hardening market, they are hard pressed to see any signs of one. However, there is growing concern that the deepening recession and credit crisis will begin affecting clients–not only in the amount of insurance they buy, but also in how they treat their risk mediation decisions.

“There's a confluence of events that I don't think anyone has ever seen before,” noted Michael S. Chapman, chief sales officer for Hub International New England, a branch of HUB International Ltd.

Primarily writing in the small-to-midsize commercial market, Mr. Chapman said there is evidence of flattening in insurance rates.

Some customers have made changes in their exposure profile to save money, but nothing dramatic, he said. However, since the end of the fourth quarter, he noted that payrolls are being reduced–sometimes dramatically–and more clients are beginning to make greater reductions in their insurable exposures and coverage purchases.

But signs of a hard market remain difficult to discern, he confessed, noting that a hard market is usually preceded by a reduction in coverage and deductibles, yet that has not happened.

At Dallas-based McQueary Henry Bowles Troy, Vice Chairman Don Bowles said the firm sees the market stabilizing, but no sign of rate increases at this point.

“The real question is how is the economy going to affect our clients,” said Mr. Bowles, where the impact from the economic downturn is especially noticeable in construction.

“[Construction workers] are working hard, but the backlog of jobs is thinning,” he said, and the first indicators of reductions in exposure are beginning to be felt.

“We have heard a lot of talk of hardening, but we have not seen it yet,” said Phil Rosenbloom, managing director for Des Moines, Iowa-based Bearence Management Group.

Bearence's geography is diverse, with main offices in Des Moines and Minneapolis, and smaller offices in Kansas City, Kan., Indianapolis and Nashville, Tenn.

Operating from the firm's Minneapolis office, Mr. Rosenbloom said renewals are flat to as high as 25 percent decreases–which, he added, is the exception. Most decreases are closer to 5 percent, with bigger decreases the exception rather than the rule.

However, with that general observation about pricing, that is not to say there are not some increases taking place in some lines of business, according to those brokers queried for this article.

There are clearly pricing increases taking place for residential and commercial line customers with coastal risks, said Hub's Mr. Chapman. However, he added, hardening is not taking place because some clients are remaining with AIG–because, he says, they are not willing to leave AIG when they still have lower prices, which is maintaining some soft market dynamics. Some of AIG's competitors have complained that the company is under-pricing risk, a complaint the company has denied.

Mr. Bowles said insurance prices are firming in his region for Gulf Coast properties, as well as for directors and officers risks.

“We clearly are not seeing a hard market,” said Mr. Bowles. “There are still good homes for the best accounts with good loss experience. Accounts with bad loss experience are more difficult because there are fewer choices.”

For difficult accounts, the wholesale market is beginning to reemerge, and some regional carriers have an appetite, according to Mr. Bowles. However, he added, these insurers are putting an emphasis on claims management and loss control, with a focus on turning around the loss experience of these accounts.

The bottom line, he said, is that “there's still a market out there.”

“A hard market gets difficult very fast,” observed Mr. Rosenbloom. “We'll know it when we see it.”

The focus of many carriers remains growth, said Mr. Rosenbloom, which means there is still plenty of competition to keep prices down. He wondered, however, at what point the downturn in earnings for insurers will start to change their outlook and prompt increasing prices.

“Prices have been down for years, and now the carrier's earning results are slipping,” noted Mr. Rosenbloom. “I guess at some point it has to stop.”

Touching on the personal lines side, Mr. Rosenbloom said that customers who in the past were not that concerned about price are now shopping a little more than they did before. Policyholders want to cut costs in order to save money in a down economy, he noted.

To help keep business in-house, he is emphasizing to customers that the firm can shop for cheaper insurance. “People are looking to cut costs on both the commercial and personal lines side,” said Mr. Rosenbloom.

The only increase he is witnessing is on the group benefits side, where rates are continuing to go up, thanks to ever-rising health insurance premiums. Even there, customers are examining the design of their plans and seeking options to reduce increases, he noted.

What worries Mr. Chapman is at one point customers begin to cut corners on their risk management mitigation by reducing necessary maintenance and other risk control measures that could eventually lead to an increase in claims.

However, Mr. Bowles said, he has also seen risk managers making decisions that would seem counter-cyclical in the current economic concerns, with clients being more careful in their risk management decisions to cut the cost of risk, while retaining less exposure and transferring more to carriers.

Customers that are focusing more on their risk management will “improve claims experience, which works to their benefit” when buying insurance, he explained.

Buyers also want to be reassured that the company that is underwriting their risks is secure, he added.

For the future, Mr. Bowles said, “we are hopeful things will improve, but at this point we are being pretty conservative in our planning and expect this to be a long process.”

“We are still positive and our employees remain positive,” said Mr. Chapman. “We're still growing and hiring.”

“The soft market really put pressure on agencies to run more efficiently,” observed Mr. Rosenbloom. “We're receiving less commission, so we need to be able to process more work for less money and be better than the next guy. Efficient agencies will do better in this kind of environment. Those that are not efficient won't last in a prolonged soft market.”