Survey Confirms 4th Quarter Spike in Property Insurance Rates Due to Hurricanes

Property insurance rates increased sharply in the fourth quarter of 2005, according to the RIMS Benchmark Survey by the Risk and Inurance Management Society Inc.

Reversing a two-year trend of steadily falling property insurance premiums, some commercial insurance buyers saw property premiums increase by as much as 33 percent, with a median increase of eight percent, in the fourth quarter.

The premium increases were driven by record-shattering insurer losses as a result of the destruction caused by Hurricanes Katrina, Rita and Wilma, estimated by Advisen to cost the insurance industry nearly $58 billion.

The survey reviews current policy renewal prices as reported by corporate risk managers.

The results validate feedback the RIMS Benchmark Survey received in the third quarter when risk managers reported that property insurance programs were beginning to experience as much as a 20 percent rate increase due to the widespread damage caused by these storms.

While some analysts have predicted that the hurricane losses would also spark higher premiums in other lines of insurance, there was 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.”

The RIMS Benchmark Survey is produced by Advisen Ltd., which collects and analyzes the data and provides the technology infrastructure for the survey’s online services. The RIMS Survey currently includes information from nearly 42,000 corporate insurance programs, the largest amount of data ever contributed to the survey in its history.

“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. Also, we don’t know if property insurance premiums have hit the ceiling or if they will continue to increase in Q1 of this year,” said David Bradford, editor-in-chief at Advisen. “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.”

Source: RIMS, Advisen