Magazine article Risk Management

Q&A: Hurricanes & the P/C Market

Magazine article Risk Management

Q&A: Hurricanes & the P/C Market

Article excerpt

Robert Howe

Managing Director and Head of Global Property Practice, Marsh

Despite the perception that complacency has emerged in the industry after two consecutive mild hurricane seasons, most risk managers are eagerly taking advantage of the soft market's beneficial rates. Robert Howe of Marsh sat down to give us his view of the market and what things other than purchasing insurance risk managers must do to prepare.

Where are we exactly in the property market and how are you seeing risk managers benefit?

Looking at where we are today, we have an extremely good climate for property buyers. The recipe out there right now for most of my clients is finding lower premiums, getting higher limits and working toward lowering their deductibles.

Close to three-quarters of our clients have been receiving rate reductions of greater than 5%, and about a quarter of them had their rates reduced more than 20%. That's a pretty good result. Our median reduction over the 2008 period has been around 11% to 12%.

What's the biggest factor in the rate drops, and who is benefitting from them the most?

It's a bit of "what goes up must come down." The clients that were most impacted in the 2006 and early 2007 period are the ones that have really come down the most. Back in 2006, there was an effort to increase the rates for cat-prone accounts and those accounts went up very drastically. Some of the less cat-prone accounts--a manufacturer with a footprint in the Midwest, for example--might have received a very modest, if any, increase. Those Midwest accounts may not be receiving the same magnitude of decrease now, but the cat accounts are certainly going down pretty dramatically. For our clients in Florida, we typically saw deductibles in 2006 move to 5% for windstorm and flood. That's been improved in many areas from 5% to 3%. That's been a real win for our clients.

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What is driving this?

What really fuels the fire is capacity. It's a very simple supply/demand equation, where demand is relatively constant--or growing slightly--and capacity has really grown. Supply has grown more than demand so prices have dropped.

The aggregate supply gives you an idea of what's out there and really feeds the competitiveness in the marketplace. Carriers are more aggressive about using capacity as a weapon--putting out larger limits on accounts to try to maintain market share. Carriers are looking at the premiums they earned in 2006 and 2007 and, in both of those years, they had extremely profitable years in the property industry so they're trying to figure out "How do we hold our premium volume?" They do it by putting more risk on their books, putting more capacity out and taking larger line size.

How long can risk managers expect this climate to continue?

There's a lot of concern about the marketplace today. It's still a great climate for our clients and we expect that to continue into the third quarter.

As we look toward the latter part of the year, we're beginning to see some underwriters who are becoming more cautious with their rate reductions because they see the amount of risk they are taking on their books.

Our own analysis shows that rates in most of the property sector are below where they were pre-Katrina. In fact, in some of the accounts that we looked at, we saw that the rates were even below pre-9/11 figures. …

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