Commercial Insurance Market More Challenging for Financial Institutions in 2012: Marsh
New York, January 30, 2012
Insurance market conditions for U.S. financial institutions will continue to deteriorate in 2012, continuing a trend that began in the second half of 2011, according to a comprehensive report published today by Marsh.
Rate decreases in many lines of insurance purchased by financial institutions moderated in 2011, Marsh said in its report, Navigating the Risk and Insurance Landscape: U.S. Insurance Market Report 2012. Financial institutions should expect this trend to continue in 2012 for most major lines of business, including financial and professional, property, and casualty.
For U.S. financial institution clients of Marsh renewing their insurance programs in the fourth quarter of 2011:
- directors and officers (D&O) liability rates were generally down 7 percent;
- errors and omissions (E&O) insurance rates were generally down 2 percent;
- property insurance rates were generally down 7 percent;
- general liability rates were generally flat to down 5 percent;
- workers’ compensation rates were generally flat to down 3 percent; and
- umbrella / excess liability rates were generally flat to up 10 percent.
“Many financial institutions continued to secure rate decreases in 2011, but signs of a transitioning market are now evident for many lines,” said Jill Sulkes, Marsh’s U.S. Financial Institutions Practice Leader. “Although rate reductions are still possible, particularly for financial and professional liability, those decreases are becoming smaller.
“Insureds should be prepared for a more challenging marketplace in 2012 as underwriters more carefully evaluate their risks. Those financial institutions that can distinguish their risk profiles from their peers should be best positioned to secure more favorable terms, conditions, and pricing when renewing commercial insurance policies.”
Other risk trends impacting financial institutions, as identified in Marsh’s report, include:
- After accounting for more securities class action filings than any other industry in each year from 2007 to 2010, the financial sector dropped to second place in 2011—behind the electronic technology and technology services sector.
- Financial institutions are analyzing the extent to which insurance provides coverage against claims arising from increasing regulation of the industry and the extent to which it can serve as capital mitigation.
- Insurers continue to scrutinize the deployment of their capacity to write workers’ compensation for financial institutions with sizable employee concentrations of 1,000 or more, particularly in New York City.
- The pace of bank failures slowed in 2011, but more than 850 institutions are on the Federal Deposit Insurance Corporation problem bank list, indicating that closures and/or mergers and acquisitions may continue in 2012.
- Financial institutions are challenged to find adequate limits for flood and earthquake coverage within their mortgage impairment insurance (MI) programs. MI protects a financial institution’s interest on property owned by borrowers.
Marsh’s annual U.S. Insurance Market Report, provides detailed information on commercial insurance market trends and conditions for all major classes of business and more than two dozen industry and specialty lines, as well as reports for other regions and for multinational insureds globally.