Property insurance premiums shoot up
Record third quarter hurricane damage in 2005 sent property insurance premiums up sharply in the fourth quarter, reversing a two-year trend of steadily falling property premiums, according to a RIMS Benchmark Survey.
Some commercial insurance buyers saw property premiums increase by as much as 33 percent in the fourth quarter although the median increase was eight percent. Premium increases were driven by record-shattering insurer losses from Hurricanes Katrina, Rita and Wilma which Advisen estimates will cost the insurance industry nearly $58 billion.
"As anticipated, the three major hurricanes in 2005 stopped the soft property insurance market in its tracks, but only time will tell if the aftermath of these storms will impact other lines of insurance," said David Bradford, editor-in-chief at Advisen, the firm that collects and analyses the data for the survey conducted for the Risk and Insurance Management Society.
Mr. Bradford adds that the results validate feedback the RIMS Benchmark Survey received in the third quarter when risk managers reported that property insurance programmes were beginning to experience as much as a 20 percent rate increase due to the widespread damage caused by these storms.
He said however it is too soon to tell if property insurance premiums have hit the ceiling or if they will continue to increase in Q1 of this year.
"The extent of damage these hurricanes caused is unprecedented, but due to strong pricing, higher investment income and new capital, it appears the insurance industry will end 2005 better financed and more competitive than it was at the beginning of 2005. Remarkably, despite the worst year on record for claims, the industry might actually report a profit," he said.
RIMS Benchmark surveyors review current policy renewal prices as reported by corporate risk managers polled from nearly 42,000 corporate insurance programs.
While some analysts have predicted that the hurricane losses would also spark higher premiums in other lines of insurance, the RIMS survey found no evidence of that in the fourth quarter numbers for casualty lines. Directors and Officers liability renewals were flat and General Liability renewals were down three percent.
"The insurance market shrugged off the record hurricane losses of 2004, but the combined impact of Katrina, Rita and Wilma was clearly more than the market was ready to absorb in 2005," said Karen Beier, member, RIMS Board of Directors, Membership and Chapter Services portfolio. "So far it seems only property insurance has been affected, but it remains to be seen if the rise in property rates will be the catalyst for an overall upturn in prices and a harder market."