Sixty-one percent of all property accounts renewed with rate increases in the second quarter of 2012, continuing the market firming that started in 2011. One out of every four clients secured rate decreases, and 14 percent renewed flat in the second quarter of 2012. It should be noted that some clients chose to increase their deductibles, reduce limits, or otherwise alter their program structures in order to avoid rate increases: those were excluded from this analysis.
Overall, rates for property accounts rose an average of 3.1 percent in the second quarter, with a median rate increase of 2.8 percent. Insureds with catastrophic exposure—defined as 25 percent or more of an insured’s total insurable value (TIV) in California earthquake and/or Wind Tier 1 zones—experienced greater increases in rates, with an average and median uptick of 5.3 percent and 4.8 percent, respectively. Accounts without catastrophe (CAT) exposures received more tempered results: Rate increases averaged 2.2 percent and median of 2.0 percent.
Exposure Trends—Overall and Catastrophe
This trend of moderate rate increases is expected to continue for the remainder of 2012 as underwriters continue to use catastrophe models and actuarial formulas to determine pricing and capacity. It is important to note that these figures are based on all of Marsh’s property clients and are not indicative of the experience an individual insured may face. Accounts with significant CAT exposures and those that experienced losses—both recent and historical—may face more pronounced increases at renewal. In fact, some lossdriven and/or heavily CAT-exposed accounts renewed with upwards of 20 percent increases or more in the first half of 2012. Even considerably CAT-exposed U.S. companies without losses generally experienced increases between 10 percent and 20 percent.
Total insurable values of all accounts grew an average of 1.9 percent in the second quarter. As a result, total property “all-risk” limits purchased in the second quarter increased an average of 1.1 percent. As the value of a company’s property increases, it is likely to increase its total limits purchased to maintain consistent levels of insurance coverage. Therefore, as the TIV increases, it is common to see a similar uptick in limits purchased.
Conversely, TIV for accounts in CAT-prone areas constricted 1.6 percent on average in the second quarter of 2012. Limits purchased for catastrophe-exposed properties also decreased; decreases averaged 1.7 percent.
As rates continue to rise slightly, it is important for insureds to have accurate information about their risk exposures as well as a well planned idea of what is important to them in terms of limits, deductibles, and terms. Purchasing more CAT limits than needed—or lower deductibles than warranted— can increase premiums unnecessarily. Therefore, trying to make those decisions after carriers have quoted will typically not yield the best results for insureds.
Publisher’s Note: Marsh Insights: Benchmarking Trends is a monthly newsletter covering purchasing behavior and pricing trends for various coverage lines. The real-time data is sourced from Marsh’s Global Benchmarking Portal, which provides industry leading data and analytics through on demand, real time benchmarking analysis, peer comparison reports, and industry/product-specific reports.