Good Time to Lock in Property Insurance Pricing, Advise Brokers

Science and technology are converging with risk management to help insurers negotiate the current hurricane season such that it’s now possible to use short-term hurricane forecasts — as few as 10 days out — to design coverage targeting a specific area of the Florida coastline, for example.

That’s according to Ryan Ogaard, global practice leader of Instrat, Guy Carpenter & Co. LLC’s risk and financial modeling services group.

No longer is reinsurance an annual consideration, Ogaard said. “Luck favors the prepared,” he commented.

He was part of a panel of experts from Marsh & McLennan Companies Inc. (MMC) who discussed their views on property insurance availability, claims management, and reinsurance in advance of the 2008 hurricane season.

The brokers advised that advanced preparation is important for insurers seeking reinsurance as well as for businesses that must purchase hurricane coverage. In fact, companies with detailed disaster management plans in place recover sooner, both financially and operationally, than those that fail to plan, according to Ken Giambagno, global leader of Marsh Risk Consulting’s Forensic Accounting and Claims Services Practice.

Giambagno advised businesses to inquire about their customers’ and suppliers’ disaster management plans as well. He cited U.S. companies whose domestic operations are already being affected because they cannot receive shipments from suppliers located in China’s Sichuan Province due to the recent earthquake there.

Commercial property catastrophe insurance pricing has decreased from the inflated premium levels of 2006 and 2007, and the supply of hurricane insurance for businesses has increased this year, according to Robert F. Howe, global leader of Property Operations for Marsh Inc.

Because of these shifting supply-demand characteristics, it may be a good time for business to lock in pricing. “Some underwriters are offering long-term deals to clients, which is good news,” Howe added.

Still, pricing may begin to flatten out later this year, particularly as the number of covered events continues to climb. The total aggregate losses to date this year have exceeded $5 billion due to flooding, fires, tornadoes, and other events worldwide.

Despite these events, reinsurance pricing has decreased 15 percent to 22 percent on a risk-adjusted basis and capacity has increased about 32 percent according to Kevin Stokes, leader of Guy Carpenter’s Global Property Specialty Practice as well as its Florida Operating Committee.

What happens next year with both capacity and pricing will depend, at least in part, on whether there are any significant reinsurance losses in 2008.

Topics Catastrophe Agencies Reinsurance Property Hurricane