From the November 21-28, 2011 issue of National Underwriter Property & Casualty • Subscribe!

Pleasant Surprise: Buyers Largely Delighted With Jan. 1 Renewals

Property coverage is cause for pricing concern—though in one case, RMS 11 led to lower rates

After weathering a devastating year for catastrophes, buyers of both property and liability coverage are for the most part quite pleased with what they are seeing for upcoming renewals—even for difficult placements.

This upbeat assessment is especially true for buyers with a positive risk history and solid broker/market relationships—both of which can make all the difference with the ultimate terms of any renewal.

Sarah E. Pacini, vice president of risk management and insurance with Advocate Health Care in Oak Brook, Ill., says her company’s underwriting meetings in September and October—focusing on renewals for hospital professional liability and general liability—were a pleasant surprise.

“We’re actually seeing a softer market this year than we had expected,” she reports. “It’s so far been a good renewal. We have several layers on our excess program to go through yet, but they are coming in very favorably at this juncture.”

Terry Fleming, director of the Division of Risk Management in Montgomery County, Md., is also quite positive about current renewal conditions, albeit with some concerns about rising costs for workers’ comp coverage.

“You keep hearing about the markets possibly moving up, but we’ve been lucky,” says Fleming, the immediate past president of the Risk and Insurance Management Society.

“I guess there’s so much capacity available that it’s keeping rates lower. There’s not much that’s moving up. I have a good network here in Maryland, and I haven’t heard anything negative,” he notes.

PROPERTY: PRICING PROBLEMS?

But one area where risk managers are expressing some rate concern is with property insurance.

Pacini, reflecting on the property coverage that she will be renewing in coming months, says, “I’m sure [property] will be a different story, especially with RMS 11 [the latest version of Risk Management Solutions’ U.S. hurricane model] coming into effect for the first time in our program.

“It’s something we will be very mindful of as we enter our property renewal in the spring,” she adds. The issue of property damage “really touches home with us [given the tornado damage suffered in May by] the Joplin hospital.”

The hospital, St. John’s Regional Medical Center, was destroyed by the Missouri tornado­—requiring all patients to be evacuated to other hospitals in the region. A replacement hospital is expected to open by the end of 2014.

Although the Joplin hospital is not one of Advocate Health’s, the devastation it suffered still serves as a learning exercise for Pacini and her employer. “It’s not very often that you hear about a hospital in the mid-United States having that type of an issue, but it’s something that has raised eyebrows and focused more attention around hospitals,” Pacini adds. “And not only in our property program, but also in our opportunities to improve around crisis management and incident command.”

Lori Seidenberg, vice president of enterprise risk management for Centerline Capital Group in Manhattan, has been focusing on renewing property coverage for wood-frame apartment buildings—dwellings insurers aren’t exactly enthused about, she says.

“We manage the general-partner interest on about $900 million worth of property across the country,” she notes. “We were challenged this year because 20 percent of that was considered tier-one wind, and because the apartments are considered wood frame. The markets have hardened where they are just not excited about this risk.”

As carriers pull out of the market, she explains, “that only leaves me with a few [coverage sources]—and they will try to charge me accordingly. Then they surcharge me for those properties with tier-one wind.”

THE RMS 11 SURPRISE

The majority of Seidenberg’s tier-one wind property is in Houston. And she notes that before Hurricane Ike (2008), Houston was not considered tier-one wind. But after that year, she says carriers started charging “catastrophic rates” for that area.

“Our tier-one wind properties had seen increases year after year [since 2008]—but this year, surprisingly, we saw some decreases. That’s because of the RMS 11 cat modeling.”

That’s right—decreases.

While many have seen increases because of RMS 11, Seidenberg says Centerline actually experienced the opposite effect. This year, post-RMS 11, “Miraculously, our property rates went down,” she says. “That’s reflective of the fact that not all of Houston is now recognized as tier-one. So this year, we saw a 20 percent decrease on our tier-one rates because of our Houston concentration.”

Seidenberg says she also came out well on the company’s Florida properties: “They were renewed flat because they have not been hit. And we haven’t had a hurricane come onshore in a few years.”

Ironically, “people are caught up in the modeling and catastrophic risk and that tier-one wind exposure—but yet my largest claim to date has been a chicken-grease fire,” Seidenberg says.

“I can’t get a hurricane to hit me, but I have a tenant who fell asleep while frying chicken and burned the whole building down. That was in Atlanta.”

Speaking of tenants and risks, Seidenberg says liability for the apartments in her portfolio went up 25 percent.

“The market doesn’t like apartment buildings,” she observes. “When the economy is challenged, you see more slip-and-falls and injuries from tenants, visitors—anyone coming onto the property. So markets are hardening their rates for apartment buildings.”

During severe weather events last year, she says, “we saw an increase in claims in places like the Midwest, with ice and snow.”  

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