Dire predictions have been floating around since September 11 regarding the availability and pricing of insurance coverage for commercial property, largely due to the issues surrounding terrorist exclusions and whopping renewal prices from reinsurance carriers. Even before 9/11, property rates were on the upswing, in part as an attempt to correct the extremely low pricing of recent years.
According to two separately released studies—one by the Council of Insurance Agents and Brokers (CIAB) and one by Conning and Company—not only are commercial property/casualty premiums rates rising significantly, insurers’ reserves are not at the necessary levels to cover the rising costs of claims. And policyholders are finding that they are paying much more for much less.
Jenny Jones, CEO of Elkins/Jones, a California insurance brokerage firm that specializes in coverage for the real estate industry, said recently in a statement that her company has “seen premiums go up as much as 40-70 percent.”
Apartments hard hit in Tx
Richard Salley, partner and manager of property and casualty operations at Tejas General Agency (TAGA) in Austin, Texas, agreed that “capacity is definitely becoming an issue.” He added, “Pricing is up substantially. It varies but I’d say…. pricing in a lot of the areas is in some cases doubled.”
However, Salley pointed out that in Texas, the apartment market has been one of the hardest hit on the commercial property area. “The apartment market has become one of the most difficult to get placed right now over what it was, say six months ago.”
He said while Sept.11 has influenced the market indirectly, as a result of the reinsurance difficulties, the apartment market has been most affected by the general property/casualty losses that have afflicted Texas in recent years.
“Over a period of time (the market has) probably been under-priced and in this state there are a whole lot of apartments,” said Salley. “The p/c losses, the hail and wind losses we’ve been having over the last four or five years, have made it a losing market for the carriers….In our agency it’s one of the tougher markets right now…We used to be able to place it effectively with a number of carriers and it’s become one of the more depleted markets for us.”
While Salley has not noticed any carriers pulling out of the market, he said that many providers are raising prices so steeply they are effectively pricing themselves out of the arena.
Brokers sound off on rates, difficulties
For the 2001 fourth quarter Commercial Insurance Market Index released CIAB, the nation’s largest commercial insurance brokers were queried about the market in the post-Sept. 11 environment. The survey compared rates over the last year and the last quarter.
The brokers reported insurance rates for small accounts rose on average 10 to 30 percent since in 2001, while nearly half indicated rates for medium and large accounts grew 30 to 50 percent. Commercial property and umbrella rates led the way with major increases, in some instances as much as 50 to 100 percent.
The New York City and Washington, D.C., markets are experiencing the most difficulties in terms of higher prices and the difficulty of placing coverage. But other cites with high-profile structures or commercial properties are seeing large increases for those types of properties, in some cases 100 percent or more.
Policy terms and conditions have toughened, deductibles are substantially higher, exclusions from mold to terrorism are common, and the limits on overall liability in umbrella policies have been capped at much smaller levels. And underwriting has moved beyond strict to burdensome in many cases. Some brokers reported that as many as five years of loss detail is being required, along with extensive financial data. In addition, brokers across the U.S. report they are dealing with availability problems by moving to the alternative marketplace for coverage.
Lowered reserves
According to the Conning study, “Property-Casualty Reserve Adequacy: Truth or Consequences,” the reserves held by eight of nine property casualty lines are severely deficient with a total reserve deficiency of $16 billion – money targeted for claims made between 1998-2000. In addition, the study anticipated that economic recession and the events of Sept. 11 will further pressure insurers’ ability to return to profitability. The study claims that individual insurers, however, appear to be slow to take action when having to deal with the need to strengthen their loss reserves.
Conning found that in the recent past, insurers paid little attention to loss reserve adequacy, but notes that rising loss costs and a weaker investment environment have refocused insurers on underwriting profitability and highlighted the importance of loss reserve adequacy.
Topics Trends Carriers Texas Agencies Commercial Lines Business Insurance Pricing Trends Property Property Casualty Casualty
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