This year has been a catastrophic one – and who pays for all of the damage and destruction we have been inundated with from Japan to Joplin?
Recently, one of our national insurance carriers announced a second quarter loss of over $350 million, much of which was driven by the devastating storms of this past spring. Total losses incurred by this company alone from these catastrophes were well over $1 billion, with an active hurricane season projected for the coming months. Other insurance carriers have reported similar loss trends. So how will this impact YOUR insurance renewal costs in the future?
A few pundits are predicting large increases, particularly in property lines of coverage and workers compensation.
We don’t share this broad-brush view for three simple reasons.
- Insurance carriers and reinsurers continue to sit on large capital reserves, even after said storms, earthquakes and floods.
- Competition is increasing with new players in the market, including small regional insurance companies, which continue to hunt for market share at the expense of large national carriers thus keeping rate increases in check.
- The demand for insurance, as measured by increases in client sales, payrolls and higher limits purchased, remains muted by our economic malaise.
Ultimately we see large amounts of capital chasing smaller and fewer insurance clients, which basic economics tell us will stunt significant increases in rate over the coming quarters.
Carriers are reporting roughly a 2% average rate gain, and while we will advocate on behalf of our clients for a better outcome, those insureds with poor loss history, poor risk management practices, or those located in storm-prone areas will likely face unpleasant renewal negotiations this summer and fall.
And my hedge – all bets are off should this hurricane season turn really ugly or we see the economy slip back into deep recession.