Declining demand for insurance might offest higher rates in hard market: Advisen

Gains from higher rates in a hard market will be offset by a falloff in demand for insurance due to the economic crisis, Advisen says in a briefing. Inevitably, capital-draining developments like recession-driven fraud losses, in conjunction with stagnant capital markets, will lead to a “hard market,” according to Advisen’s, The Impact of the Economic Crisis on the P&C Insurance Industry.But the hard phase of this market cycle will be materially different from prior cycles, it continues.The extreme poor financial results emanating from the current economic climate will cause exposure units to shrink, businesses to fail and force companies to consider budget-cutting measures such as higher retentions and lower limits, Advisen predicts. “While past recessions have influenced insurance pricing, no recession since World War II has influenced both supply and demand so profoundly,” said David Bradford, Advisen’s executive vice president and chief knowledge officer. “Hard market conditions eventually will provide insurers and brokers some relief, but we see absolute top line income declining through 2009.”