As the transportation insurance segment goes, so goes the rest of the casualty market, according to those who write the business.

Casualty writers in general then may be heartened to learn that some professionals are beginning to see rates in most lines of this weathervane segment flattening, and experts predict a harder market will emerge late this year.

Others in the industry, however, remain skeptical and note that, if anything, they are seeing increased competition in recent months rather than a flattening of rates.

The driving force behind the market remains the economy, and its effects are causing challenges for insurers, the transportation industry itself and the transportation industry’s customers.

For example, David Dunn, president of RLI’s Transportation Division in Atlanta, said with construction projects slowing, flatbed trucks that haul steel are also struggling.

Shawn Young, senior vice president, transportation practice leader of NIP Group, a Woodbridge, N.J.-based specialty brokerage, said corporate expenditures overall are down drastically and that, in turn, is hurting livery businesses such as airport limousines and black cars, which are typically used for corporate transportation.

Mr. Dunn said he’s seen customer revenues off 15-to-40 percent this year. He also said he is seeing a lot of bankruptcies and downsizing among truck lines. Additionally, Mr. Dunn said transportation companies are struggling to find financing in what is a “capital-intensive business.”

A struggling transportation industry impacts insurers, as the amount of business they can write is reduced and the size of the premiums per account shrinks.

With many transportation companies being “sophisticated buyers,” Mr. Dunn said there is a feeling of reciprocity— transportation companies want their insurers to make a profit and stay in business, and insurers want the same for their customers.

Still, as pricing changes and rates begin to firm, Mr. Dunn said it is important to talk to customers, keep them informed and build long-term relationships with them.

Rates began to show signs of slowing in the transportation market during the 2008 fourth quarter, according to an NIP Group survey published in February. NIP Group’s Transportation Insurance Pricing Survey (TIPS) polled insurance brokers, wholesalers and underwriters about pricing for the transportation market.

The survey said the slowing of rate decreases was most noticeable in small accounts, with premiums of $75,000 or less. For this segment, the number of respondents who believed rates fell by 10 percent or more decreased by 25 percent from the 2008 third quarter.

The survey noted the flattening of rate decreases was seen by brokers insuring most segments, but was most noticeable in the bulk transportation, charter/tour bus operators and airport ground transportation segments. In those segments, the number of respondents who observed any rate decrease dropped by at least 40 percent in each segment compared to the third quarter.

Additionally, the survey found the number of new insurance carriers competing for premium abated in the fourth quarter.

Both Mr. Young and Mr. Dunn said they believed the direction of prices in the commercial transportation market can be an indicator of what’s in store for the casualty market as a whole.

The transportation insurance business is the first to get soft, and it’s also the first to harden, Mr. Dunn said. When this market changes, the casualty market will follow, he added.

Mr. Young said because of the economy, insurers are looking for underwriting profits more than investment income now, and that is pushing rates higher. He said the deep discounts of 25-to-30 percent in the transportation market are going away.

He also said the appetite of some carriers who write the business is shrinking.

While he noted there are many variables that make predicting where the market will head difficult, Mr. Young said if the economy doesn’t turn, the hard market will arrive sooner. By the end of this year, he said, the market could see “real underwriting” again.

RLI’s Mr. Dunn said he is also starting to see some changes in the market. He cited lower investment income for carriers, higher claim costs and reduced revenues as reasons, and he also said rates could harden some in late 2009.

Not all players agree that rates are stabilizing, however.

Larry Kalior of California-based Transportation Insurance Brokers, a brokerage dedicated to the passenger transportation industry, and Jeff McAnany, also of TIB, said they have seen no sign of firming rates in the passenger transportation segment.

Mr. Kalior said the market has actually “almost gotten worse” over the last few months. Offering a reason for the deepening rate decreases, he cited the competitiveness of companies such as American International Group and The Hartford, which are struggling in other areas and trying to retain their transportation books of business.

Mr. McAnany added that continuing overall competitiveness and new players in the market are also keeping rates low.

With the struggling economy and an insurance industry looking harder for revenue, he said rates have not stabilized for passenger transportation yet because “no one wants to be the first to jump.”

Mr. McAnany also said with rates remaining competitive, he is seeing more customers shopping for insurance. He said even traditionally loyal accounts are out shopping, and carriers have fed off of customers’ willingness to test the market.

Frank Caponi, chief executive officer of Cavallino Risk Management Inc., an agency in Huntington Station, N.Y., agreed that rates are continuing to drop. His agency writes trucking and commercial auto risks, and he said he is “seeing new lows every day” with respect to pricing for both lines.

He said he has more markets writing transportation risks than he has ever had since he began writing this class of business in earnest in 2000.

He cited competition due to new entrants seeking new sources of revenue as the primary reason for the continuing rate decreases.

Mr. Caponi also noted the loss ratio for his book of business is down, so the low premiums may not be entirely unjustified. He added insurers may be willing to offer such competitive prices to get business in the door, with the intention of increasing prices later.

Mr. Kalior argued that the market needs to harden considerably, and sooner rather than later.

He said he saw a March 18 presentation by V.J. Dowling, managing partner, Dowling & Partners Securities LLC, titled, “The New World—Why Pricing Could/Should/Must ‘Turn’ in 2009-2010,” in which Mr. Dowling argues that in today’s economy, insurers will need to achieve a combined ratio of under 85 to see a 12 percent return on equity. To achieve a 15 percent ROE for accident year 2009, the combined ratio needs to fall under 80, according to Mr. Dowling.

If there is any silver lining to be found in the economy for transportation insurers, it is a better driver pool for transportation companies, resulting in better risks for insurers. Both Mr. Dunn and Mr. Young mentioned the growing pool of good drivers.

Mr. Young said smaller fleets typically struggle to find quality drivers, but they are able to get them now because larger trucking companies are going out of business.

Mr. Dunn mentioned another recent benefit to insurers due to the recently record-high oil prices. When oil prices were high, he said, drivers tended to drive slower to conserve fuel, which led to reduced frequency of loss for insureds.

Generally, Mr. Dunn said, with the economy the way it is, insurers could benefit from insureds continually looking for improvements in operations.

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