Producer commissions fall as insurers slash commercial pricing

Producer commissions fall as insurers slash commercial pricing

Producer commissions fall as insurers slash commercial pricing The softening insurance market is bringing changes to broker bottom lines as insurance companies continue to slash pricing on commercial policies in an effort to remain competitive.

Large accounts are taking the biggest pricing cuts, dropping 3.7% on average during the first quarter of 2015, according to the Council of Insurance Agents & Brokers (CIAB)’s most recent Commercial P/C Market Index Survey. Medium size accounts fell 2.7%, and all accounts dropped an average 2.3%.

That’s compared to a relatively small 0.7% decline during the fourth quarter of last year.

Ken Crerar, president and CEO of the CIAB, attributed the drop to an increasingly soft market, greater competition and low catastrophe losses.

“The trend of falling prices we saw in the fourth quarter of 2014, continued into the first quarter of this year,” Crerar said. “Last quarter, buyers gained some advantage as pricing slid across the board and across all regions for most lines of business.

“A relatively calm catastrophe season, with the exception of the harsh winter in the Northeast, helped push commercial property pricing down in most of the country.”

The results were the same across all regions as carriers become more aggressive and, in the words of one broker, “hungry, hungry, hungry.” Survey respondents reported carriers exhibiting a “much broader appetite,” offering low deductibles, flexible pricing and terms, and multi-year deals.

Only the Northeast coastal area reported some tightening, likely due the high volume of snowfall that hit the area last winter.

Despite the increased risk, brokers noted that carriers are still looking for accounts with good loss histories.

“Good accounts being marketed got very competitive pricing. Bad accounts got increases,” reported one Midwest broker.

Of course, the reduced prices mean a slight squeeze on broker commissions – but favorable rates may also bring a willingness to purchase new coverages like cyber liability, which continued to surge in popularity, the CIAB survey found.

An earlier report from Wells Fargo also highlighted the forthcoming soft market, suggesting its duration could be prolonged.

In its “2015 Insurance Market Outlook,” the company notes that the improving economy and available capital have positioned the commercial property/casualty market for stable and profitable conditions throughout the year, in spite of falling prices.

“Despite rate reductions—forecast to be in the high single to low double digits—the market should see sustained underwriting profitability and attract new capital as a result of GDP growth and rising interest rates,” said Kevin Brogan, head of the Property and Casualty National Practice at Wells Fargo Insurance.

Overall, Wells Fargo projects property/catastrophe rates to fall 10% to 20%, while workers’ comp is expected to decrease 5% to 10% by the middle of the year.