The property insurance market remained relatively stable and competitive in the first quarter of 2013, with few changes to limits purchased and deductibles, according to a benchmarking report from broker Marsh.
Superstorm Sandy, which hit the Northeast in the fall of 2012, has “not been a market-changing event” in terms of rates, the report says, although it has prompted underwriters to closely scrutinize terms and conditions, particularly those related to flood and storm surge.
Marsh said 70 percent of its clients in the United States renewing their property all-risk programs in the first quarter of 2013 had no change in limits or purchased lower limits. The overwhelming majority — 84 percent — of clients renewing in the first quarter also had no change in deductibles.
Marsh said these trends are “consistent with a competitive property insurance marketplace, with some specific exceptions in the wake of Superstorm Sandy.” Changes in terms and conditions being sought by underwriters are generally limited to the Northeastern U.S. and elsewhere with significant flood exposures.
Property Rates Remain Competitive
While property insurance rates have typically spiked after major catastrophic events such as Hurricanes Katrina and Ike and the Christchurch and Tohoku earthquakes, that has not happened following Superstorm Sandy, accoridng to the report.
“The post-Sandy rate environment has, to date, been relatively stable, with the major effects of the storm coming in the form of changes to deductibles, limits provided, and policy definitions,” the report says.
Marsh said average renewal rates in the first quarter were up 3.8 percent for insureds without catastrophe exposures, almost flat for moderately catastrophe-exposed programs, and up 3.6 percent for insureds with significant catastrophe exposures.
Marsh said that insurers have had enough capital to absorb Sandy losses and most are not likely to reduce capacity for the remainder of 2013, barring unforeseen events. With capacity remaining high, rates in the second quarter are now beginning to soften, according to the report.
As to terms and conditions, underwriters are focusing on the distinction between flood and storm surge. Some policies may state that “storm surge” is included within the definition of “flood,” while others consider it part of the “named windstorm” definition. This distinction may determine the available limit and the deductible that will apply to the loss, Marsh said.
The report says this scrutiny of definitions and deductibles related to windstorm, flood, and storm surge is expected to continue for the next several months and could be extended to consider whether tsunami belongs under the definition of either flood or earthquake.
“Risk managers should work with their insurance advisors to achieve ‘contract certainty’ — achieving a clear understanding of how various perils are defined under their policies,” marsh advised.
The report was prepared by Marsh’s U.S. Property Practice in conjunction with Marsh Global Analytics, Benchmarking Center of Excellence, which provides purchasing patterns and pricing behavior analytics to Marsh clients and the insurance industry.