State liability insurers doing better than others

July 15, 2011
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According to the most recent report filed by the Office of Financial and Insurance Regulation, the state’s market for commercial liability insurance is still competitive and somewhat profitable.

The 2010 report, which was issued during Gov. Jennifer Granholm’s last year in office, said there wasn’t an “indication that competition does not generally exist in this market.” The annual filing from the OFIR, which was under the direction of Commissioner Ken Ross, noted that the state’s top 10 insurers had 55.7 percent of the commercial liability market in 2009, down from 56.5 percent in 2008.

The top three underwriters were the Auto Owners Group, Hanover Insurance Group and the Travelers Group. The trio accounted for 28.2 percent of the liability market and wrote $92.4 million in premiums statewide.

Other notable findings from the report were:

  • Except for extremely hazardous classes of businesses, buyers had many options to purchase commercial liability policies.

  • Prices dropped and competition between carriers went up in 2009.

  • Geography wasn’t an issue for availability or cost of insurance.

  • Market share of the surplus lines, insurance for buyers who couldn’t secure coverage from standard carriers, is a small part of the total liability market. It has averaged less than 2 percent for the past seven years.

The OFIR report said the commercial liability market was “soft” in 2008 and 2009, meaning there were more sellers than buyers. A scenario like that results in lower prices because supply tops demand. “The continuing economic crisis has reduced the amount of risk available to insure because of many business closures and no new businesses being started,” the report reads.

The report also revealed that commercial liability insurers in Michigan had the second-lowest loss ratio in 2009 across an eight-state comparison. State firms had a loss ratio of 23.75 percent, while companies in Indiana and New York topped 51 percent. Only insurers in Ohio had a lower ratio at 23.54 percent. The U.S. average in 2009 was 37 percent. The liability portion, in percentage of actual dollars, for Michigan firms was 22.6 percent in 2009.

In a longer look, OFIR found that liability insurers in Michigan had the lowest average loss ratio over seven years when compared to the same eight states. From 2003 to 2009, state firms had a loss ratio of 38.7 percent. Ohio was next at 42.5 percent. The U.S. average was 52 percent. A low loss ratio normally generates profits for insurance firms.

The liability portion for Michigan companies was 32.44 percent over the seven years.

While the loss ratio remained low for Michigan liability companies, the total of premiums written in 2009 was $321.5 million. That volume level was a significant drop when compared to premium sales from 2003 to 2006. Total premiums ranged from a low of $442.3 million to a high of $470.6 million over those years.

The report indicated that premium totals may have fallen for three reasons. One, there was either a net increase or decrease of commercial enterprises in the state over the period. Two, rates were raised or lowered to compensate for higher or lower costs of claims. Three, higher or lower amounts of coverage were purchased.

“In summary, commercial liability companies in Michigan have experienced a seven-year loss ratio average of 32.44 percent or a 19.45 percent increase in profitability over the seven-year period,” read the OFIR report.

“If a Michigan company has managed cyclicality effectively, consistently practiced conservative underwriting, and diversified investments to minimize risk, it has outperformed its counterparts in many states.”

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