Claims News Service, Feb.7, 9:49 a.m. EST — What are the biggest potential risks for 2006? According to the Insurance Information Institute, which recently issued its annual Groundhog Day forecast, high on the list are exposure to catastrophic loss, which has superseded loss of pricing and underwriting discipline as the chief concern. Insurers also run the risk of overestimating the impact of 2005′s record catastrophe losses on the price and availability of coverage in 2006.

According to the report, among major external risks, tort costs remain among the factors that most significantly affect insurer financial performance, despite the passage of the Class Action Fairness Act of 2005 and traction on medical malpractice reform. Asbestos remains perhaps the largest single legislative disappointment for insurers, who generally oppose the government's current trust fund proposal. Asbestos also continues to weigh down the industry's financials, with various insurers taking charges to bolster reserves.

Terrorism also remains a key concern, despite the two-year extension of the Terrorism Risk Insurance Act signed by President Bush on December 22. The extension, which has a new expiration date of December 31, 2007, pushed considerably more risk onto private insurers, who have consistently maintained that large-scale terrorism events are not privately insurable. For example, individual company deductibles rise from 15% of direct earned premiums in 2005 to 17.5% in 2006 and 20% in 2007. Likewise, industry aggregate deductibles are raised from $15 billion currently to $25 billion in 2006 and $27.5 billion in 2007. Many insurers will have retentions greater than or equal to their actual 9/11 losses.