Commercial P/C Market Bracing for Katrina/Rita Impact
November 2005
Commercial insurance brokers from across the
country say so far, the impact of Hurricanes Katrina and Rita has been minimal,
but they are bracing for higher prices, reduced capacity, increases in deductibles
and tighter terms and conditions for property/casualty coverage as a result
of the devastating Gulf Coast storms.
by The Council of Insurance
Agents & Brokers
Washington, D.C.
The third quarter 2005 Commercial Property/Casualty Market Index of The Council
of Insurance Agents & Brokers showed some isolated premium increases and coverage
changes. But the survey period—July, August, and September—covered only a few
weeks of the Katrina/Rita aftermath, and brokers said the worst is yet to come.
"Habitational pricing and deductibles are up, even outside coastal regions,"
said one broker from the Southeast. "Carriers are stating capacity in (the most
exposed) coastal areas may be limited going forward. Umbrella underwriters have
mentioned difficulty with reinsurers—claiming they will be passing along Katrina/Rita
costs to insurers."
"A firming of the property market is emerging," said a broker from the Northeast.
"Capacity on high-limit accounts is being reduced, and catastrophic exposures
(i.e., flood, earthquake) have gone up a minimum of 50 to 200 percent depending
on the severity exposed."
Other brokers reported higher wind and flood deductibles and tighter business
interruption underwriting since Hurricane Katrina.
The Council represents the leading domestic and international insurance brokers
who write 80 percent of the commercial property/casualty premiums in the United
States and administer billions of dollars in employee benefits accounts annually.
Most commercial brokers responding to the survey said they expected the biggest
impact of the hurricanes to be felt in renewals on November 1 and December 1
of this year, and in the always heavy January 1, 2006, renewal period.
"Just beginning to see some hardening in the last few weeks," a Midwestern
broker reported. "Our 10/1 business wasn’t impacted, but indications are that
future expirations, and especially 1/1 business, will feel the impact."
"Some price increases, as well as a few carriers pulling out of the market
until they figure out the reinsurance situation and the amount of losses they
will have to pay due to these storms," added a Southeastern broker.
For most of the quarter, however, the commercial casualty market continued
to experience declining rates across all sizes of accounts, although the reductions
for medium and large accounts were not as great as in the first and second quarters
of 2005. An analysis of Council survey data by Lehman Brothers showed that the
average commercial account experienced an 8.2 percent decline in renewal rates
during the third quarter.
The Lehman analysis showed that the renewal premium for the average small
account declined by 5.6 percent in the third quarter, the same rate as experienced
in the second quarter. Premiums for medium accounts declined by 9.4 percent,
and large accounts declined 9.7 percent during the third quarter.
Premium declines were reflected across most lines of commercial business
during the quarter, although about one-third of the accounts for broker errors
and omissions policies, construction risks, medical malpractice, directors and
officers insurance and workers’ compensation remained flat or increased slightly
during the period.
In response to an open-ended question about what should be done to deal with
flood losses in the future, a number of brokers said mortgage lenders need to
be more assertive about requiring flood coverage—and insisting that the policies
stay in effect—for properties in flood zones. One broker suggested that the
National Flood Insurance Program should automatically issue an invoice, and
another urged a three-year policy with automatic renewal.
Others suggested stricter set-back requirements and that the wind-versus-flood
damage issue be addressed, perhaps with a special "hurricane" insurance plan.
And several urged that the current flood zone maps be revised to better reflect
the reality of exposure.
Several comments also noted that the federal flood program encourages people
to build in harm’s way, and thus is "an unnecessary tax on Americans," as one
broker in the Midwest put it.
"Flood coverage should be provided by the commercial markets and carry realistic
(high) pricing so that losses could be paid and development discouraged," the
Midwestern broker continued.
"Rebuilding in those areas that are prone to recurrent flooding should be
looked at," said a broker from the Northeast. "Why should anyone have to pay
over and over to rebuild in those areas? If a carrier wants to accept that risk
on a voluntary basis and buyers want to pay the premiums for the coverage, fine.
But to make it mandatory or to force coverage through some federal backstop
is a waste of taxpayer money."
Commercial Property - Casualty Market Survey
Third Quarter 2005 Released: October 2005
Below are the survey results for: ALL REGIONS
NUMBER OF RESPONSES: 142
1. On average, how have premium rates changed over the last three months
(July 1 - September 30) for the following accounts? Please check N/A if you
don't know or don't handle the type of account.
Table
1: Premium Rate Change by Account Size
2. How much have premium rates changed over the last three months (July 1
- September 30) for the following lines? Please check N/A if you don't know
or don't handle the line.
Table
2: Premium Rate Change by Coverage Line
Figure
1: Average 3Q05 Commercial Rates Decreased 8.2%
Figure
2: Average Commercial Premium Rate Changes by Account Size
Figure
3: Cumulative Quarterly Rate Increases by Account Size
Figure
4: By-Line 3Q05 Rate Changes Ranged From -9.2% to -6.0%
Figure
5: Rate Changes In Other Lines
Figure
6: Average Commercial Rate Increases By Line
Figure
7: Cumulative Quarterly Rate Increases By Line
Figure
8: Insurance Rate Changes, Small Commercial Accounts*
Figure
9: Insurance Rate Changes, Medium Commercial Accounts*
Figure
10: Insurance Rate Changes, Large Commercial Accounts*
Figure
11: Commercial Auto Insurance Rate Changes
Figure
12: Workers' Compensation Insurance Rate Changes
Figure
13: Commercial Property Insurance Rate Changes
Figure
14: Commercial General Liability Insurance Rate Changes
Figure
15: Umbrella Insurance Rate Changes
Figure
16: Business Interruption Insurance Rate Changes
The Council of Insurance Agents &
Brokers is the voice of the market leaders and the premier association
for commercial insurance and employee benefits intermediaries in the United
States and abroad. From its headquarters in Washington, DC—with programs conducted
throughout the nation and world—The Council represents leading commercial insurance
agencies and brokerage firms. Only the top one percent of all agents and brokers
meet membership qualifications. The Council's members, in more than 3,000 locations,
place 80 percent—well over $90 billion—of all U.S. insurance products and services
protecting business, industry, government and the public at-large, and they
administer billions of dollars in employee benefits. Since 1913, The Council
of Insurance Agents & Brokers has worked in the best interests of its members,
securing innovative solutions and creating new market opportunities at home
and abroad. Web site: www.ciab.com
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