CURRENT INSURANCE MARKET CONDITIONS
CURRENT INSURANCE MARKET CONDITIONS
AND WHAT YOU CAN DO TO ACHIEVE AN OPTIMAL INSURANCE PROGRAM
T
he good news is that for most
insureds and lines of coverage, it
remains a buyer’s market despite
the number of particularly
destructive hurricanes in 2017.
The exception is automobile insurance,
where insurers have lost money for five
straight years. As a result, many are
experiencing increasing premiums for
automobile coverage.
The bad news is that this generally
favorable market condition can quickly
change if one event or series of events
significantly depletes Industry Surplus.
Attritional losses, which are defined as
losses other than major losses, are getting
easier to forecast and therefore improves
insurers’ ability to accurately price their
coverage. However, black swan events,
man-made and natural catastrophes,
and emerging issues—some heretofore
unanticipated—render accurate pricing a
somewhat elusive goal. Examples of new
and emerging issues include cyber-attacks;
acts of terrorism; escalating medical cost
inflation; more comorbidity cases; an
increase in the frequency and severity
of severe storms; increased property
development in areas susceptible to
windstorm, flood, and earthquake perils;
an aging workforce; distracted driving;
and an erosion of common law defenses in
many jurisdictions.
As respects natural and man-made
catastrophes, we know they will occur.
We cannot, however, predict how many
there will be or how large. The 10-year
global average for insured losses from all
catastrophes is $58 billion. In 2017, the
total was a record-setting $144 billion in
insured catastrophe losses. Hurricanes
Harvey, Irma, and Maria—combined with
wildfires—were responsible for $106 billion
of this total.
Many predicted that because of the
worst year on record for insured losses,
rates would rise precipitously for most
buyers. However, while last year’s results
suppressed industry income, it failed to
erode its substantial and growing Capital
Base. The Capital Base is Industry Surplus,
and that figure rose to a record-setting $752
4
billion at year-end 2017. This is essentially
the Supply of Insurance.
Industry Surplus combined with alternative
capital sources like catastrophe bonds
provide ample financial resources for
insurance companies to meet the needs
of their customers and, to this point, offer
competitive pricing for most insurance
buyers.
Regardless of market conditions, there are
steps you can take to obtain the optimal
insurance program:
1. Select an insurance broker and carrier
who understand the unique needs and
challenges of the real estate industry.
2. Meet with underwriters with your
broker present. Personalize the process,
help tell your story, and openly discuss
claim activity, particularly what steps
may have been undertaken to prevent a
reoccurrence.
3. Start the renewal process early and
request quotes at least 30 days prior to
the renewal date.
4. Request options at various deductibles
and limits.
6. Provide status on any subrogation
efforts.
5. Review all open claims and make sure
the reserves are accurate and fair.
7. Use catastrophe modeling for
windstorm and earthquake exposures,
where applicable, and make sure all
data used by insurers to calculate their
exposure and develop their premium on
your account is updated and thorough.
8. Make sure you understand exclusions
and consider purchasing coverage
to expand your program. Examples
include Environmental Insurance,
Cyber Risk, Employment Practices
Liability, and the coverage limitations
that are part of Federal Flood
Insurance. Many may not be aware
that Federal Flood Insurance is ACV,
not Replacement Cost, that there is no
coverage for time element exposure
such as rents loss, and the maximum
limit offered may not be adequate for
your needs.
9.
Insurance contract language can be
confusing for most buyers. Make sure
you understand the exact definition
of what constitutes a “Named Storm,”
how a “Named Storm” is different
from a Hurricane, and what the exact
definition of “Flood” is and how it is
different from water damage, storm
surge, wind-driven water, and rain.
People often conflate the policy
definitions of wind, flood, and water
damage. They are, generally, much
different.
10. Request a periodic update on market
conditions so you can more accurately
prepare for upcoming renewals and
receive an accurate forecast.
Communication, understanding, and an-
ticipation are all part of achieving the best
program with no surprises at renewal time
or at the time of a claim.
BY: BRIAN RUANE
NATIONAL DIRECTOR OF
REAL ESTATE AND HOSPITALITY
JGS INSURANCE
Brian Ruane, CPCU has 40 years
experience in the insurance industry
as an underwriter, broker and Adjunct
Professor of Risk Management.
Before joining JGS he served in a
variety of executive positions at an
international insurance brokerage
firm, most recently as the founder
and director of its national real
estate, hotel and casino practice. He
managed a team of 100 professionals
across the nation and was responsible
for over 300 clients placing in excess
of $1 billion in premium into the
insurance market.