Market Watch has reported that falling prices for commercial insurance and other coverage is beginning to affect insurance broker’s revenue growth. Property and casualty insurance prices rise and fall in cycles. When insurance companies are profiting from business, they compete more aggressively to win new business, driving prices down and cutting future profits. When earnings fall and competition wanes, insurance prices start to climb again.
Insurance brokers are affected by this cycle because they obtain a large portion of their revenues form commissions, usually charged as a percentage of premiums. When prices are rising, the brokers’ revenues increase. When prices fall, revenues stagnate or decline. During the fourth quarter of 2007, commercial insurance prices dropped by 12 % on average.
