After Sandy, Underwriters, CAT Models View Northeast Like Southeast: NAPCO

By | May 6, 2013

Superstorm Sandy may not have hardened the insurance market, but it has changed the way underwriters view the Northeast, a view that catastrophe models will reflect going forward.

According to NAPCO’s Spring 2013 State of the Market Report, underwriters and CAT modelers will now treat the Northeast more like the Southeast when it comes to property pricing and the availability of flood insurance.

The wholesale brokerage’s report also says that underwriters will be using enhanced technology that can provide more precise modeling to help underwrite in this region.

“Everything else –hurricanes, earthquakes, etc. – underwriters have a good handle on,” he says. “But we have to reexamine how we price and treat this area,” says Dave Pagoumian, president of Iselin, N.J.-based NAPCO.

Pagoumian said while Sandy caused some earnings losses for the major carriers in the region, it wasn’t significant enough to overtly disrupt the market.

“The key thing is that it’s clear that we are able to absorb these big events – like Superstorm Sandy – and insurance companies can stay in business,” he says. “Sandy was more of an earnings event. It definitely had an impact but we knew it wasn’t going to be enough to change the market overnight.”

NAPCO predicted this would be the case in its report released last fall shortly after Superstorm Sandy, says Pagoumian, because people were still doing deals and there was plenty of capacity in the marketplace.

If anything, Pagoumian says, the market has almost gone forward as if Sandy losses didn’t happen. But, he reemphasized, that isn’t true of how underwriters are looking at this geographic area.

The most volatile areas of the property marketplace now are the habitational segment and flood coverage. Those segments are struggling with how to provide and price coverage adequately, according to NAPCO.

NAPCO’s Spring 2013 State of the Market Report also says:

  • Global catastrophes losses reached a total of $65 billion in 2012, down from a high of $119 billion in 2011
  • Sandy losses were only about 5 percent of policyholder surplus and barely made a dent in the industry’s underwriting capacity
  • Prices in early 2013 were flat to up 10 percent on accounts that were not loss impaired.
  • The frame habitational market is in disarray as insurers exit the market. Pricing in the Midwest is up as much as 50 to 100 percent.
  • Sandy delayed price declines and put price competition on hold.
  • The interval between hard markets has been lengthening from about every three years to 13 years between the 1984 to 1987 and 2000 to 2003 hard markets.

NAPCO said it consults with a variety of outside resources and gathers information from its core team of brokers for its reports.

Topics Underwriting

About Amy O'Connor

O'Connor is the Southeast editor for Insurance Journal and associate editor of More from Amy O'Connor

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