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Letter to the Editor
Tuesday December 17
Insurance Information Institute Survey Sees Insurance Pricing Continuing to Rise in 2003
Property and liability insurance prices will carry on rising next year, according to an industry survey, as insurers claw back money paid out in claims and try to offset weak investment returns. The survey, by industry-sponsored group the Insurance Information Institute (III), suggests premium prices will keep on rising until insurers cut their losses significantly.According to Wall Street analysts and industry professionals polled by the III, property and liability insurance premiums in the United States will increase 12.3 percent next year, on average, compared with a 13.6 percent increase this year.
Insurance prices have shot up over the past two years -- after more than a decade of stagnation -- partly as a result of World Trade Center losses and payouts on companies' liability policies.
Despite the sharp rises, analysts say insurers will still lose money on underwriting next year. According to the survey, they expect insurers to pay out $1.03 in claims for every $1 of premium taken in -- an industry measure known as the combined ratio. The ratio for this year is estimated to be $1.06.
Insurers usually make up the difference with investment returns, but with this year's miserable markets, insurers are having to take a closer look at their core business of underwriting risks.
In the current low-return environment, insurers need to pay out no more than 95 cents in claims for every $1 of premium -- making a pure profit on underwriting -- before they can start making acceptable returns, according to survey author Bob Hartwig, the III's chief economist.
As that situation is unlikely, insurance prices will continue to rise, the survey suggests.
However, Hartwig says insurance for businesses is actually cheaper -- on a relative basis -- than it was a several years ago. The survey shows commercial insurance will account for about 1.8 percent of U.S. gross domestic product this year, the same level as 1995.
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