A clear consensus exists among insurance executives andexperts when it comes to the Property insurance market: Rates wereon the rise before Superstorm Sandy, and there's certainly noreason the storm will stop that momentum.

“Rates had been on an upward trend,” says Robert Hartwig,president of the Insurance Information Institute. “Sandy will addto that pressure.” 

Before Sandy struck the Northeast just prior to Halloween, ratesin Homeowners' and Auto insurance were already increasing, due inpart to the increasing cost of repairing homes and autos—and, inthe case of Auto claims, the cost of repairingpeople. 

Rates have increased each month in 2012, and Hartwig says thistrend in rising Auto rates will continue. Price gains are nowexceeding loss costs. 

Property insurers were faced with the rising costs ofconstruction materials during a disaster-filled 2011 whenwildfires, tornadoes, hail and Hurricane Irene batteredinsurers.

While 2012 had been a relatively low catastrophe year for mostcarriers, Hurricane Sandy radically changed that. According toestimates, the industry could see more than 650,000 Homeowners'claims, 250,000 Auto claims and 100,000 Commercial claims.

“The industry will look at the trends and costs and then seek toprice accordingly,” says Hartwig. “In the recent past, insurershave been successful in getting regulatory approval for higherrates.”

MarketScout's newest Personal Lines Rate Barometer—based onpricing surveys—indicates October matched September with a3-percent rise in personal-lines rates. 

MarketScout CEO Richard Kerr says price increases will“absolutely” continue, and it “will be very interesting” to see howthe admitted market handles the aftermath of thestorm. 

“New admitted-market players kept creeping into coastal areas,”he says. “Some just got hammered.” 

Kerr says of one carrier he refused to name: “I know the claimsare more than the surplus.”

A SURPLUS OF OPPORTUNITY? 

While admitted carriers reassess exposures, Kerr predicts Sandywill have a “profound” effect on the nonadmitted market as standardcarriers start to shed risks.

Even pre-Sandy, carriers in the standard market were tighteningunderwriting guidelines and starting to retreat from high-riskareas, such as coastal property and homes far removed from thenearest fire department, according to Bill Gatewood, director ofpersonal-lines products and sales at Burns &Wilcox. 

“Carriers have been nibbling around the edges,” he notes,meaning that the standard market has been dropping higher Propertyrisks and has become less accepting of accounts with aloss. 

“We're starting to see Property risks come to us that a year agowould have easily gone to the standard market,” Gatewood says.“Sandy is going to push the [standard] market some more becausetheir results are starting to deteriorate.”

Another factor, according to Gatewood, is a philosophy amongmany insurers to get out of the mono-line Property business. Theywould rather limit doing business to clients with multipleaccounts—such as Home combined with the more profitableAuto. 

“Agents have contacted us because of restrictions on mono-line,”he adds.

'NOT A LOT OF TAKERS' 

Even in the surplus market, not all risks are accepted. Gatewoodsays he recently attempted to put together a Property program onthe New Jersey coast and went to London for additionalcapacity. 

He was turned away. 

“There's very little interest in the Northeast from London orthe reinsurers,” he adds. “There are plenty of opportunities, butnot a lot of takers.”

Even before Sandy, the Northeast was becoming less acceptable tosurplus carriers and reinsurers due to changes in the perception ofrisks in this region—brought about by Risk Management Solution'sVersion 11, released last year. 

Months ago, when NU first reported on the effect RMS and increased cat losseswere having on the market, Joel Cavaness, president ofRisk Placement Services, said the model was inciting standardcarriers to take evasive action on coastal exposure in New York andNew Jersey, among other states.

Today, Gatewood says Sandy will only exacerbate the desire tolimit exposures in the Northeast—at least at currentrates. 

One upshot of this is that Sandy could reinforce RMS' model anddrive rates up to a level acceptable to London and the reinsurers,thereby adding capacity. 

Or Sandy could convince London and the reinsurers that they wereright in staying away from the Northeast, Gatewood says, meaninginsurance could be harder to come by for an increasing share of thepopulation.