Commercial Insurance Market Index Documents Signs of Market Distress

January 17, 2002

According to PR Newswire, the insurance industry is showing the first signs of distress following the Sept. 11 terrorist attacks, with major commercial property/casualty premiums uniformly on the upswing and confusion in the market as carriers try to determine what they can and cannot cover and at what price.

These findings are reflected in the 2001 fourth quarter Commercial Insurance Market Index released by The Council of Insurance Agents + Brokers. The survey compared rates over the last year and the last quarter. In the survey, the nation’s largest commercial insurance brokers were asked both specific and open-ended questions regarding the market in the post-Sept. 11 environment, and their responses indicate emerging disruption and dislocation.

Rate increases continued through the fourth quarter, with the most significant hikes in the midsize and large accounts. Buyers in general are getting less coverage at higher prices. Brokers also reported a greater number of exclusions in general, but terrorism coverage is hard to find. And where it is available the limits are so low and the prices so high, many businesses are simply deciding to go without. The survey also showed there is no predictability on coverage or costs for many lines of insurance.

According to Ken Crerar, president of The Council, while the situation has not yet reached a crisis level, the uncertainty and confusion its members find when trying to place certain lines will contribute to an overall unsettled business environment. Crerar added it’s too early to determine whether this disruption is a short-term reaction to the trauma of Sept. 11 or a more permanent market condition.

The difficulties of placing and calculating risk were present in the market survey, which is significant because it includes the period leading up to Jan. 1, 2002, when about 70 percent of the reinsurance treaties expired and were up for renewal.

Rates, meanwhile, continued their upward rise, a trend evident even prior to the Sept. 11 attacks.

The brokers reported insurance rates for small accounts rose on average 10 to 30 percent since in 2001, while nearly half indicated rates for medium and large accounts grew 30 to 50 percent. Prices shot up considerably by line, with commercial property and umbrella rates leading the way with major increases, in some instances as much as 50 to 100 percent.

New York City and Washington, D.C., markets, where terrorists crashed three of four planes on Sept. 11, are proving to be some of the toughest commercial underwriting challenges, providing some of the biggest rate hikes.

Others said that also is the case with many high-profile structures or commercial properties that have major concentrations of visitors, workers or occupants. For the high profile accounts, the premium increases can be 100 percent or more.

Even where the rate increases are smaller, brokers report policy terms and conditions have toughened, deductibles are substantially higher, exclusions from mold to terrorism are common, and the limits on overall liability in umbrella policies have been capped at much smaller levels.

Underwriting has moved beyond strict to burdensome in many cases. Some brokers reported that as many as five years of loss detail is being required, along with extensive financial data.

Brokers nationwide report they are dealing with availability problems by moving to the alternative marketplace for coverage. The excess/surplus lines market has seen a surge in business, especially for umbrella and property risks.

Brokers also say clients are showing more interest in captives as a result of the hard market.

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