RIMS Survey Reports Spike in Property Insurance Rates
February 2006
The Q4 survey showed that property rates rose
sharply in response to insurer losses from the record hurricane damages, ending
2 years of falling premiums. Other increases have yet to be seen and the jury
is still out on whether the property rate spikes will catalyze upturns elsewhere
and harden the market.
by Advisen Ltd.
Property insurance rates increased sharply in the fourth quarter of 2005,
according to the RIMS Benchmark Survey,™ the industry's only comprehensive survey
of current policy renewal prices as reported by corporate risk managers. Reversing
a 2-year trend of steadily falling property insurance premiums, some commercial
insurance buyers saw property premiums increase by as much as 33 percent, with
a median increase of 8 percent, in the fourth quarter. The premium increases
were driven by record-shattering insurer losses as a result of the destruction
caused by Hurricanes Katrina, Rita, and Wilma, estimated by Advisen to cost
the insurance industry nearly $58 billion.
The results validate feedback the RIMS Benchmark Survey received in the third
quarter when risk managers reported that property insurance programs were beginning
to experience as much as a 20 percent rate increase due to the widespread damage
caused by these storms.
While some analysts have predicted that the hurricane losses would also spark
higher premiums in other lines of insurance, there was no evidence of that in
the fourth quarter numbers for casualty lines. Directors and officers liability
renewals were flat, and general liability renewals were down 3 percent.
"The insurance market shrugged off the record hurricane losses of 2004, but
the combined impact of Katrina, Rita, and Wilma was clearly more than the market
was ready to absorb in 2005," said Karen Beier, member, RIMS Board of Directors,
Membership and Chapter Services portfolio. "So far, it seems only property insurance
has been affected, but it remains to be seen if the rise in property rates will
be the catalyst for an overall upturn in prices and a harder market."
The RIMS Benchmark Survey is produced by Advisen, Ltd., which collects and
analyzes the data and provides the technology infrastructure for the survey's
online services. The RIMS Survey currently includes information from nearly
42,000 corporate insurance programs, the largest amount of data ever contributed
to the survey in its history.
"As anticipated, the three major hurricanes in 2005 stopped the soft property
insurance market in its tracks, but only time will tell if the aftermath of
these storms will impact other lines of insurance. Also, we don't know if property
insurance premiums have hit the ceiling or if they will continue to increase
in Q1 of this year," said David Bradford, editor-in-chief at Advisen. "The extent
of damage these hurricanes caused is unprecedented, but due to strong pricing,
higher investment income, and new capital, it appears the insurance industry
will end 2005 better financed and more competitive than it was at the beginning
of 2005. Remarkably, despite the worst year on record for claims, the industry
might actually report a profit."
About the Benchmark Survey
Risk managers who contribute insurance schedule data to the survey can benchmark
both the structure of their commercial insurance programs and the cost of insuring
their risk against a highly relevant group of similar companies. Additionally,
survey respondents can use customized software to view detailed schedules of
insurance programs for current and past years and to create full-color charts.
Both benchmark charts and program charts download into any presentation for
senior management. The results of the RIMS Benchmark Survey are available online,
published continuously throughout the year, and in a book, published once each
year. Visit www.advisen.com/ for details. Risk management professionals can contribute their data by e-mailing
current and prior year policy schedules to . Data can also be
sent by fax to Advisen at (212) 655-7453. Advisen will input the data, making
it available for online review and comparison within days. Participant support
is available by calling (800) 655-6590.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.