CIAB Survey Shows Wind, Flood Coverage Issues for Coastal Property

Although the overall commercial property/casualty marketplace has seen little impact from the severe 2005 hurricane season, coastal property is experiencing a sharp increase in prices for wind and flood coverage, according to the latest Commercial Insurance Market Index Survey by The Council of Insurance Agents & Brokers.

“Two markets exist — coastal property (and that definition has expanded north) and the rest,” observed a broker from the Southeast.

The Council’s fourth quarter 2005 survey of insurance brokers showed the overall commercial p/c marketplace has not registered the price increases some analysts forecasted after a devastating hurricane season with a record-number of named storms and extensive damage to Gulf Coast states and Florida.

Sixty-five percent of the small accounts and 60 percent of medium accounts up for renewal during the quarter experienced premiums that either held steady or dropped up to 10 percent; 52 percent of the large accounts saw premium rates hold steady or drop up to 10 percent, and an additional 17 percent of large accounts experienced premium drops of from 10 to 20 percent.

An analysis of The Council’s survey data by Lehman Brothers showed the average premium rates for renewals dropped 4.6 percent for all sizes of commercial accounts in the fourth quarter.

The Council represents domestic and international commercial insurance brokers who annually write 80 percent of the nation’s commercial property/casualty premiums and administer billions of dollars of employee benefits accounts.

Asked whether they had seen pricing changes due to Hurricanes Katrina and Rita, 58 percent of the survey respondents said “no,” while 42 percent said “yes.”

“Some lip service to market tightening, but little if any evidence of it,” said a Midwestern broker. “Overall, the market continues to be competitive.”

But for those in coastal areas subject to flooding and wind storms, it was a different story, with capacity dropping, wind deductibles and exclusions rising sharply, and insurance underwriters looking carefully at the risks. One of the areas being examined is the year commercial structures were built because of wind code compliance issues, with older buildings receiving higher premium quotes than newer construction.

“Over 75 percent of the accounts in the Southeast have seen rate increases. Anything with wind exposure is seeing significant rate increases,” a broker from the Northeast reported.

The survey showed that even with higher deductibles for wind coverage, premiums were still increasing.

“Huge reductions in wind limits,” one broker said. “Fifty to 100 percent increases in property rates for coastal accounts. Other property accounts flat or 10 percent increases.”

Some brokers said they were waiting to see what impact reinsurance treaty renewals will have on the property market.