Council Survey Shows Prices Up, Capacity Down for Cat Exposures
July 2006
Premium prices are escalating and capacity
is shrinking for catastrophe-exposed property, but for other commercial lines,
the market is soft as carriers compete for noncatastrophe risks, according to
the latest commercial property/casualty insurance market index survey by The
Council of Insurance Agents and Brokers.
by
The Council of Insurance
Agents & Brokers
Washington, D.C.
The market index survey for the second quarter 2006 found that 51 percent
of brokers responding said average premium rates for small accounts were down
between 1 and 20 percent. An additional 26 percent of brokers registered no
change in small account rates compared with renewals in the first quarter of
the year.
The drop in renewal rates was even steeper for medium and large accounts.
Nearly six in 10 of the brokers reported medium and large accounts were down
1 to 20 percent.
An analysis of The Council's survey data by Lehman Brothers said commercial
premium rates declined by an average of 3 percent for all sizes of accounts
during the second quarter of 2006. Among individual property/casualty lines,
all experienced a decrease except commercial property, which increased 9.3 percent
during the second quarter.
However, for catastrophe-exposed property, it was a sharply different story,
the survey showed. Brokers and agents reported that premium rates for coastal
properties were up 300 to 500 percent—and some even by 600 percent—and that
the impact was being felt as far as five miles inland.
The take-up rate for flood insurance remained at roughly the same level as
in the first quarter, but high premium rates and lack of capacity could explain
why more property owners aren't getting covered.
The Council represents the leading domestic and international commercial
insurance agents and brokers who annually write more than 80 percent of the
commercial property/casualty premiums in the United States and administer billions
of dollars in employee benefits accounts. Brokers said higher property rates
and deductibles and lower coverage limits were the industry standard during
the last 3 months, with significant differences in the way catastrophe-exposed
property risks were being underwritten.
"This market is changing daily," said a broker from the Southwest. "Capacity
is scarce, and it's a great concern that later in the year, there may not be
any capacity left. I am referring to the Southeast Gulf Region and Texas in
particular."
"Rates are up 300 to 500 percent on commercial property and builders risk,"
a broker from the Southeast said. "Deductibles increased 200 percent, and (it
is) also deductible by location, not by occurrence. In some cases, it makes
it almost impossible to have a claim. Clients without bank debt are buying coverage
excluding wind and buying the max NFIP (National Flood Insurance Program) flood."
That broker continued, "In South Louisiana, it is very obvious that no underwriter
has any final say-so on carrier's capacity. Also, carriers do not understand
the Louisiana market or what has been accomplished to prevent another Katrina/Rita.
Risk that had no losses from either storm are all treated as if they are six
feet below sea level."
He also reported that "carriers are fighting insureds on all aspects of storm
claims, business interruption, property, equipment, marine. Any large claim
gets delayed through carrier claims reviews and sign-offs for advance payments."
He said the delays are forcing insureds to bank lines to rebuild their operations
from storm damage.
"The market is extremely soft outside the coastal areas," a broker from the
Southeast observed. "The companies seem to be trying to get premium in less
cat-prone areas to make up for the premium they are giving up on the coast."
A significantly larger number of agents and brokers cited concerns over capacity
as among their top three market worries in this survey. More than half—55 percent—listed
capacity, compared with 40 percent who identified it as a top concern in the
first quarter survey. The two other top concerns, echoing the results of previous
surveys, were the return of price competition and natural catastrophes.
Capacity and pricing problems were not just confined to at-risk properties
along the coast, the survey showed. Commercial earthquake insurance is increasing
50 to 100 percent for renewals, several brokers reported, and there also are
significant increases in deductibles.
Among the various commercial lines, construction remained problematic.
"Residential construction continues to be a challenge," said a broker from
the Pacific Northwest.
"Construction risks (mainly residential) have continued to see rate increases
for general liability," agreed a Southeastern agent. "A limited number of carriers
are willing to quote GL (general liability) for condo and townhome construction
due to defect claims."
Commercial Property—Casualty Market Survey
Second Quarter 2006 Released: July 2006
Below are the survey results for: ALL REGIONS
NUMBER OF RESPONSES: 107
1. On average, how have premium rates changed over the last three months
(April 1 - June 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 (April
1 - June 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
Average
2Q06 Commercial Rates Decreased 3.0%
Average
Commercial Premium Rate Changes by Account Size
Cumulative
Quarterly Rate Increases by Account Size
By-Line
2Q06 Rate Changes Ranged From -6.9% to +9.3%
2Q06
Rate Changes in Other Lines
Average
Commercial Rate Increases by Line
Cumulative
Quarterly Rate Increases by Line
Insurance
Rate Changes, Small Commercial Accounts*
Insurance
Rate Changes, Medium Commercial Accounts*
Insurance
Rate Changes, Large Commercial Accounts*
Commercial
Auto Insurance Rate Changes
Workers'
Compensation Insurance Rate Changes
Commercial
Property Insurance Rate Changes
Commercial
General Liability Insurance Rate Changes
Umbrella
Insurance Rate Changes
Business
Interruption Insurance Rate Changes
Founded in 1913, The Council is the premier association for
commercial insurance and employee benefits intermediaries. The Council represents
the leading commercial brokers and agents in the United States and abroad. Council
members annually write 80 percent of all commercial property/casualty premiums
in the United States and administer billions of dollars in employee benefits
accounts. www.ciab.com.
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