MBA: Catastrophic Insurance Coverage Forever Changed by Katrina

Mortgage Banking, November 2006 | Go to article overview

MBA: Catastrophic Insurance Coverage Forever Changed by Katrina


Catastrophic insurance pricing for commercial real estate may never return to pre-Hurricane Katrina levels due to the increased loss expectations from hurricanes and rating agency scrutiny over an insurance company's overall exposure to catastrophic events. That was the major conclusion of a white paper commissioned by MBA.

The MBA white paper, Natural Disaster Catastrophic Insurance-The Commercial Real Estate Finance Perspective, noted that in 2004 and 2005, natural disasters caused $89 billion in privately insured catastrophic losses, prompting insurance companies to re-examine their business models for insuring natural disasters.

The overall purpose of the MBA white paper is to provide the information needed to develop a comprehensive understanding of the market forces shaping and influencing the catastrophic insurance market, according to MBA Vice Chairman Kieran Quinn.

"With all that is happening within the insurance market as it relates to catastrophic insurance, this white paper provides clarity on the current state of the market as well as on what we may face in the future from a commercial real estate finance perspective," said Quinn. "This broad view is a key component to industry discussions about formulating solutions, and resolving the availability and affordability of insurance for our members."

Insurers and reinsurers have pulled out of or have reduced their portfolio allocations in certain disaster-prone areas of the country, the white paper noted. This resulting insurance-capacity loss has caused property insurance rates to spike from 100 percent to more than 600 percent in certain coastal areas with heavy hurricane exposure, and has put a tremendous strain on state-operated insurance pools that serve as the insurer of last resort in these areas.

The distressed insurance market for natural-disaster insurance has led to an insurance availability and/or affordability crisis in some states.

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MBA: Catastrophic Insurance Coverage Forever Changed by Katrina
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