Carriers Try ‘Holding the Line’ on Property-Cat Renewals: NAPCO

November 18, 2014

Property-catastrophe insurers have been focused on winning new business, which means new customers are seeing bigger price cuts, according to a market report from a wholesale broker specializing in catastrophe risk placements.

Ebola business interruption covers for nonphysical damage begin to emerge
NAPCO’s Fall 2014 State of the Market report notes that the price of property-cat insurance has been moving down in the range of 5-20 percent for most accounts in 2014—with variations dependent on the account’s loss history, location and previous price reductions.

But early signs of carrier pricing discipline started to emerge by the fourth quarter, the report says. While insurers “have been attempting to hold the line” on renewal pricing, NAPCO reports that they are “more willing” to slash rates to capture new accounts and are also increasingly willing to offer more capacity to offset the impact of lower rates on carrier premium volume.

Does that mean insureds should change carriers?

Offering some placement considerations for insurers, the wholesale broker initially notes that “replacing incumbent insurers can lead to greater cost savings for some accounts.” The report goes on to warn, however, that factors such as previous pricing history come into play and that remarketing programs might not produce savings and also might not be a prudent long-term strategy.

The report, which also suggests that it would take a $70 billion event to turn a soft market with more than $700 billion in policyholders surplus, notes that even earthquake coverage rates remain soft.

Actually, NAPCO characterizes the earthquake market as “very soft” in spite of the Napa earthquake in August.

“Critical wind deductible buydown policies are now being priced in the range of 5-7 percent of the desired buydown limit,” NAPCO says, contrasting that to a previous range of 12-15 percent.

Addressing potential trouble spots, the NAPCO report discusses terrorism and Ebola coverage issues.

With respect to terrorism, NAPCO says:

As for Ebola, the report says:

NAPCO cites the Catlin and Ark syndicates in the London market among those offering this last product. And on the demand side, NAPCO reports that the coverage for nonphysical damage from business interruption is being mainly sought by healthcare insureds but that there is also “definite interest” coming from the real estate and municipal sectors.

NAPCO explains that the typical trigger for the coverage would be a governmental, or similar, shutdown of a premises subject to a waiting period.

To date, insurers seems to be charging a rate of about 10 percent of the limit to provide this coverage.

Source: NAPCO