The biggest concern for insurance buyers in 2007 continues to be unpredictable pricing and a lack of competition for coverage of catastrophe risks, one leading brokerage contends.
During the renewal process, buyers with cat exposures have faced restrictions in terms and conditions, reduced capacity, increased pricing and increased retentions, according to Duncan C Ellis, managing director of the property and international practice with Marsh in New York.
Despite the benign 2006 storm season, some insurers "continue to pull out or reassess their exposures…in coastal areas," Mr. Ellis noted during a recent webinar on "Preparing for the 2007 Hurricane Season & Insurance-Market Update."
However, he said, overall property market insurance pricing is declining rather significantly. He noted that the 2006 season stabilized the catastrophe market.
For example, he said some insurers in 2006 increased windstorm deductibles to 5 percent–up from 1-to-3 percent in prior years. Insurers are also easing deductibles in some specific geographic areas, such as Houston or surrounding Harris County, Texas, he noted.
However, he conceded that buyers with heavy catastrophe exposures–particularly California earthquake–are seeing increases on renewals.
In general, Mr. Ellis said that renewals with moderate catastrophe exposure are seeing flat pricing to slight decreases.
On the other side are buyers with "little or no cat exposures, who are witnessing a competitive insurance market," he noted. Much like the rest of the property-casualty industry, these buyers "are seeing decreases of 5 to 15 or 20 percent on average," Mr. Ellis said.
In a discussion about natural hazards modeling, Fletcher A. MacGregor, managing director of property loss control for Marsh in Detroit, said he has "seen buyers reduce their premiums in the neighborhood of $500,000 or so." While this result won't happen in all places, he added, "the savings can be very significant" if a buyer can make the case that their exposure is more limited.
Mr. Ellis said insurers are competing for non-catastrophe property business as a way to assure premium growth and spread of risk, noting that the non-cat marketplace is the "most flexible it has been in years."
Mr. Ellis added that international property markets "are seeing an even softer non-cat market than we are seeing in the United States, providing potential cost and coverage benefits for those companies that engage in these markets." The Japanese and Singapore markets, for example, are "eager to write U.S. businesses today," he said.
With the Terrorism Risk Insurance Act scheduled to expire at the end of this year, the terrorism insurance market is experiencing uncertainty, he observed.
However, despite a changing and uncertain legislative environment, "terrorism take-up rates continue to climb to record levels," he noted. Indeed, Mr. Ellis said that nearly six out of 10 companies "have decided that property terrorism insurance is worth purchasing."
While TRIA's looming expiration has caused some uncertainty, this has not affected the property terrorism market to the same extent as was the case in 2005, when the original act expired, he added.
"There is tremendous optimism that an agreement will be reached, and TRIA will be extended in some form, based largely on favorable comments by congressional leaders," he said.
Unlike in 2005, he noted, "we are not seeing as many insurers insisting on sunset clauses, although we expect that as the year progresses, some markets may add these endorsements more often."
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