NU Online News Service
Purchasing insurance for catastrophe-zone properties is close to undoable, but elsewhere competition for property coverage is increasing rapidly and prices are falling quicker than expected, one major brokerage firm reports.
Willis in New York made that finding in its latest "Property Alert." However, even as prices drop, the firm said the market is not truly "soft" when compared with pre-2006 conditions.
Insurance buyers "are clearly benefiting from the health, financial strength and increased capacity of today's insurance marketplace," Willis said.
However, the brokerage found that "in some places, it remains impossible to purchase enough insurance to qualify for a commercial mortgage-backed securities loan unless the lenders agree to modify the insurance requirements."
Willis added that, for example, "a beach resort may not be able to buy more than $200 million of hurricane insurance no matter how much money they are willing to spend (within reason)."
However, the non-catastrophe market in May is seeing a softening of prices that "seems to be accelerating every day. There is vigorous competition, rates are falling and there is more capacity," Willis said.
"Even insurance buyers who suffered hurricane and storm surge losses in 2004 and 2005 are beginning to get relief, with capacity rapidly reappearing, pricing decreasing and terms and conditions being offered with greater flexibility–the exception being cat deductibles," according to the report.
The speed with which pricing has changed for these buyers since the beginning of the year is inconsistent, Willis found. The firm reported some renewals are flat, while some have decreased 5-to-25 percent, but only a very few have experienced increases.
The report notes that the Federal Emergency Management Agency is systematically updating flood plain maps, and Willis warns the updates could translate into significant new risks for insurance buyers.
For commercial buyers, Willis said the biggest danger is in beginning a policy year with properties designated in certain zones, and ending it with these zones having been updated mid-year.
Willis advises that insurance buyers would do well to request the communities in which they have operations notify them directly as soon as flood zone changes are being proposed, because FEMA does not normally make changes without giving these communities advanced notice and a chance for a public hearing.
As for terrorism exposures, the Willis report said that while the broker is "continuing to hope for a permanent solution, we believe that [the Terrorism Risk Insurance Act] will indeed be extended" in Congress, perhaps for as long as 15 years, "albeit with amendments that may be more onerous to insurers than those provided by the current structure." TRIA is due to expire at year's end.
The full report can be viewed online at http://www.willis.com/news/Publications/MR_Properties_0507.pdf.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.