Despite Sandy, Property-Insurance Market Remained Stable in Q1

The first quarter of 2013 saw few changes to limits purchased or deductibles in the property-insurance market, which remained relatively stable and competitive, according to a new briefing from Marsh's U.S. Property practice.

Property-insurance limits and deductibles remain stable, the broker says, indicating a competitive marketplace—with the exception of clients in the Northeast and those with significant flood exposures. 

Despite being the second-costliest storm in U.S. history, however, Superstorm Sandy has not thus far proven to be a market-changer in terms of rates. Still, it has prompted underwriters to more intensely scrutinize terms and conditions, particularly those related to flood and storm surge. Average rates for renewal in Q1 were up 3.8 percent for clients without catastrophe exposures; nearly flat for moderately catastrophe-exposed programs; and up 3.6 percent for those with significant cat exposures.

Seventy percent of Marsh's U.S. clients renewing their property all-risk programs in the first quarter either saw no changes to their limits or purchased lower limits. What's more, the strong majority (84 percent) of clients renewing in the first quarter also had no change in deductible.

The stable rate environment characterized in the report in part reflects Marsh's assertion that rates that had been rising steadily for some time in more cat-exposed parts of the U.S. have now plateaued, and also reflects how the market's ample capacity has kept rates competitive. In fact, with capacity still high post-Sandy, rates in the second quarter are now beginning to soften, the brokerage adds.

With regard to terms and conditions in property policies, underwriters are focusing on the distinction between flood and storm surge, Marsh notes. While some policies state that “storm surge” is included within the definition of “flood,” others consider it part of the “named windstorm” definition, the report adds—a distinction that may determine the available limits and the deductible that will apply to the client's loss.

This increased scrutiny of definitions and deductibles tying in to windstorm, flood and storm surge is expected to continue for the next several months, adds Marsh. “Underwriters may also extend this discussion to consider whether tsunami belongs under the definition of either flood or earthquake,” the report says. “Risk managers should work with their insurance advisors to achieve 'contract certainty'— achieving a clear understanding of how various perils are defined under their policies.”