Commercial rates flattened entirely while personal lines pricing moderated from +3% to +2% between November and December 2014, according to the latest MarketScout pricing survey.

When MarketScout began tracking commercial p-c rates in July 2001, an ongoing hard market cycle ended 43 months later in February 2005. The market turned soft the next month, marking the first composite premium reduction at -1% and the beginning of a soft market cycle that would last 78 months.

In November 2011, premiums started increasing again, albeit at a less dramatic rate. According to MarketScout CEO Richard Kerr, the composite p-c rate had been drifting toward renewing as expiring throughout 2014—and finally hit that mark in December.

“Historically, the move to softer rates is in line with prior market cycles,” Kerr says. “After 37 months, the rate increases appear to be over. The next soft market will start as soon as a composite rate decrease is measured.”

By commercial coverage class, EPLI held steady at +2% and commercial property and auto were down 2%. Rates for all other commercial coverages were down 1% in December. By account size, medium and large accounts adjusted downward from +2% to +1% and from +1% to flat, respectively.

All signs point to a soft market "coming—and soon. We expect the beginning of the next soft market cycle to be in early 2015,” Kerr says. “We don’t expect the aggressive pricing which occurred in the last soft market cycle of 2006- 2011, nor do we expect another 70-month cycle.”

But smart companies will be prepared for a changing rate environment, Kerr says. “If you budgeted for increases in rates in 2015, you best change that portion of your business plan now,” he advises. “We suggest planning for slight rate decreases beginning at the end of the first quarter and slowly increasing to a reduction of 4-5% by the end of 2015.”

The good news? Kerr says increased exposures related to economic growth should help offset rate decreases. “Intermediaries will enjoy increased revenues as their insureds grow,” he explains. This additional revenue will help balance out the revenue reduction as a result of lower rates.”

For personal lines, homeowners rates moderated by 1%, with pricing for homes valued more than $1 million declining from +3% to +2% and all others declining from +4% to +3%. Auto rates also moderated, from +3% to +2%, while personal articles pricing held steady at +1%.

“The personal insurance market has been relatively stable in 2014, with rate increases ranging from 2-4%,” Kerr says. “We expect continued pricing stability in 2015 absent cataclysmic events.”

Jacquelyn Connelly is IA senior editor.