Insurers are cutting rates in Western New York and elsewhere to capture new business, after the nation's property and casualty carriers posted their best underwriting results in nearly 50 years.
The industry this week reported that its earnings soared to more than $60 billion in 2006, after it raised premiums to cover its risk, but then didn't suffer big losses.
That means companies don't have to focus on restoring their reserves, which were depleted in recent years, first by the terrorist attacks in 2001 and then by devastating storms.
So instead of retrenching, industry officials and brokers say, they are again aggressively seeking to grow their market share, which means businesses in Western New York could be paying 10 percent to 20 percent less for commercial insurance policies this year.
"Companies have done very well. They went through a year and escaped any major catastrophic-type losses," said Robert J. Connor, managing director for Upstate New York for Marsh USA, the No. 1 U.S. insurance brokerage. "Prices are on the decline as companies' surpluses have been built back up."
In fact, Connor said it's "not uncommon" to see price cuts for "good quality risks" of more than 20 percent and as much as 30 percent or even 40 percent in rare cases. "It's very competitive now," he said. "They want to hold onto the clients they have."
But not everyone sees it. "It's a little disappointing to see that hasn't been passed through to the final customer," said Mark Johnson, financial operations manager for McGuire Group, a nursing home operator and real estate developer. "It hasn't been skyrocketing like it did a few years ago, but I haven't seen it come down."
And it hasn't translated into sharply lower premiums for personal home and auto policies, where premiums tend to be less volatile and flexible. Rates there are falling 3 percent to 7 percent, but homeowners may not see it in their final premium. That's because insurers are making customers buy more coverage to account for the rising cost of repairs.
"We're seeing the impact of a competitive market first in the commercial market because rates for commercial insurance are much less heavily regulated than are rates for personal auto and homeowners," said Joseph J. Annotti, spokesman for the Property Casualty Insurers Association of America, a trade group. "The freer market conditions on the commercial side allows companies to adapt quicker to the changing situation."
Still, what consumers pay for home insurance in Buffalo is "a tiny fraction" of costs elsewhere, reflecting the lower risk here, said Robert Hartwig, president of the industry-funded Insurance Information Institute.
And auto insurance prices, which have come down in New York in the last year primarily as a result of state regulators' intervention, should continue falling now that the state's no-fault insurance fraud problems have been reduced, he added.
The insurance industry has been widely denounced recently for its high profits. The Consumer Federation of America and other groups in January accused the industry of overcharging customers and shifting costs to consumers and taxpayers. The groups say the industry is paying out the lowest level of claims compared to premiums than at any time in decades.
Insurers have been particularly criticized for not paying enough to Gulf Coast storm victims.
"Profits and a solid insurance industry are a good thing, but unjustified profits and excessive capitalization harm consumers," said J. Robert Hunter, Consumer Federation's director of insurance and former Texas insurance commissioner.
Industry officials acknowledging the frustrations. "I can understand why homeowners are upset. They look at the profits for one year and draw conclusions where their premiums should be," said Genio Staranczak, PCIAA's chief economist. "But you have to look at it from a longer-term perspective. We had a good year in 2006, but we had crummy years before."
The insurance industry this week reported a 44 percent jump in earnings last year, to $63.7 billion, said the Insurance Services Office and the PCIAA. That's a 14 percent return -- the highest since 1986.
Final profits are often driven by investment gains, but last year included a $31.2 billion net gain on underwriting -- or premiums minus insured losses -- which is a big reversal from a $5.6 billion net loss in 2005. It's also the best underwriting gain since at least 1959.
That's because direct insured losses from storms and other catastrophes fell to $9.2 billion in 2006 from $61.9 billion in 2005, when three major hurricanes -- Katrina, Rita and Wilma -- struck the Gulf Coast.
"It allows us to build up capital so we can pay claims when the next storms hit," Staranczak said in a press conference.
That test could come as soon as a few months from now, as hurricane expert William Gray from Colorado State University has predicted a much more active storm season this year, with nine storms compared with the average of six. Many parts of the country also are subject to earthquakes, insurance officials noted.
And damages could be worse and more costly in the future because of the higher likelihood of more frequent and severe disasters, the growth and concentration of population nationwide, and the increased value of property in high-risk areas.
Indeed, ever mindful of the criticism, officials are quick to cite those factors to justify prices. Even after last year, the industry lost $135.3 billion on underwriting from 1997 to 2006, and $434.3 billion since 1959.
"You don't make up for your past losses and you don't give back your past profits," said Michael Murray, assistant vice president for financial analysis at Insurance Services Office, a Jersey City, N.J.-based advisory and research firm. "You're trying to come up with the right premium to charge for a policy."
In the meantime, however, customers in Western New York and elsewhere in the country's interior are expected to reap some benefit from the industry's financial health and competitive fervor. Hartwig said the "vast majority" will see cuts or no change in premiums.
Nationwide, commercial insurance rates will fall about 6 percent to 10 percent. Locally, insurers are going after the lowest-risk accounts, and "being very aggressive on pricing," said Daniel P. Murray, marketing manager for Lawley Service Insurance Group, the area's No. 2 independent agency. "If your financials are good, if you've not had significant losses, you can see anywhere from a 5 to 20 percent decrease."
Factories that work with flammable liquids or businesses with older facilities are higher-risk, while new sprinklers lower the hazard. Even large properties could see a drop, he said.
And the cuts are happening across policy types, including property, general liability, umbrella policies, and directors and officers' liability coverage.
"It's very competitive now," Connor said. "Insurance companies want to hold onto their market share, so they're giving some pricing breaks. And they have the surplus right now to withstand some decreases."