The 2007 outlook for insurance rates is good for buyers even in the hard hit property catastrophe sector, according to an annual survey by the Risk & Insurance Management Society.
Property coverage rates–the only line of business that climbed in the fourth quarter of 2006–increased by about 6.6 percent. The sharp increase was caused by the continuing legacy of the 2005 hurricane season, according to the annual RIMS Benchmark Survey, produced by Advisen Inc.
Given that there are no major catastrophes this season, it’s a “pretty good bet” that property coverage in 2007 will stabilize or even improve, David Bradford, editor-in-chief of Advisen, told National Underwriter.
“Especially now after the Florida legislature has suddenly pulled a couple-billion dollars worth of premium out of the catastrophe reinsurance marketplace,” he said. “That’s going to stabilize the situation across the board, because a lot of that capacity will be reallocated elsewhere.”
Florida’s new property insurance law, enacted last week, includes a provision to allow primary insurers to purchase additional reinsurance from the state catastrophe fund at cheaper prices than they would see from a private reinsurer. The measure seeks to provide rate reform for property owners by increasing competition among carriers and rolling back rate increases.
Mr. Bradford explained that as much as 20 percent of the catastrophe reinsurance premium available to the commercial marketplace “just disappeared. This means that reinsurers will be scrambling to use their capacity elsewhere.” With the Florida action, he added, “we’ll see that process accelerate.”
The comprehensive survey of current policy renewal prices, as reported by corporate risk managers, found that rate increases continue to affect not only property owners with coastal exposures in the Southeast, but also companies with windstorm exposures in Mid-Atlantic and Northeastern states and earthquake exposures in California.
In the fourth quarter of 2006, directors and officers and workers’ compensation coverages reported the largest decreases in premium rates with 5.1 percent and 7.4 percent, respectively.
According to the survey, D&O continues to be a competitive line of business with rate decreases further stimulated by a sharp drop in the number of securities class action suits filed in 2006.
As tracked by Advisen, there were 112 class actions in 2006, compared with 186 such suits filed in 2005. Competition has been spurred in the workers’ comp line of business by reform measures passed in several large states.
“Risk managers have benefited from lower premiums in most lines of business but continue to be challenged by skyrocketing property catastrophe premiums,” said Joseph Restoule, RIMS secretary and a member of the board of directors, in a statement.
He noted, “We’ve now gone a full renewal cycle since the catastrophes experienced in 2005. There are reasons to be optimistic that the market for catastrophe coverage will stabilize and even improve in 2007.”
Aggregate policyholders’ surplus, the measure of insurance capacity, increased sharply in 2006 as a result of strong pricing and few catastrophe losses. According to a report released by A.M. Best Co. in December, property and casualty policyholders’ surplus grew 8.7 percent to $477.3 billion.
“Greater capacity resulting from a very profitable 2006 means that underwriters are going to be under pressure to slash rates further in 2007,” Mr. Bradford said in a statement. “Even risk managers with coastal property exposures should see improvements this year.”
General liability premiums continued to decrease slightly in the fourth quarter by 2.6 percent. Changes in general liability reported in 2006 show premiums for the year were relatively unchanged.
Advisen said it has introduced the “Broker Authorization Letter,” enabling risk managers and insurance buyers to contribute to the RIMS Benchmark Survey by designating their broker to provide the client’s program details. The letter is available at www.RIMS.org/brokerform or by calling 800-655-6590.
Risk management professionals can also contribute by e-mailing current and prior-year policy schedules to Benchmark@RIMS.org or by faxing to 212-655-7453.
Risk managers who contribute data to the survey can benchmark the structure of their commercial insurance programs, retained loss costs, exposure demographics and total cost of risk (TCOR) against a highly-relevant group of peer companies, RIMS said.
Additionally, survey respondents can use software personalized and configured for their needs to view detailed schedules of insurance, programs for current and past years, and full-color program tower charts. Both benchmark charts and program charts download into any presentation for senior management.
Results of the RIMS Benchmark Survey are available online or in an annually published book. For details visit www.RIMS.org/benchmark.