Category Archives: Property/Casualty

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Property Insurance and Disaster Recovery

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How well a company can recover from a disaster often hinges on the quality of the recovery plan. And as Joshua Gold and Lawrence Bartelemucci of Anderson Kill & Olick point out in a new article, this plan needs to be in place before a disaster strikes. In order to develop the most effective plan, certain key considerations, both from an insurance perspective and a property perspective, must be addressed. Developing a checklist of these items can make all the difference. For example:

  • Is your space worth rehabilitating? If it is, then your company will need to contract for design and construction services to rehabilitate the current space or rebuild on site. If the space that will be rehabilitated is leased, your company needs to coordinate its efforts with the landlord.
  • If it is not worth rehabilitating, then your company must consider how it will dispose of the space (for example, selling the property or cancelling the lease), and how it will acquire new permanent space. In addition, your company will need to contract for design and construction services for its new space. This process should involve a zoning analysis to ensure that your company can build what it needs and conduct its operations on the chosen site.

For more insight, be sure to check out their article, only on RMmagazine.com.

Q&A With David Hollander, Ernst & Young’s Global Insurance Advisory Leader

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On the heels of Ernst & Young’s recently released 2012 Global Consumer Insurance Survey, I spoke with David Hollander, Ernst & Young’s global insurance advisory leader, to ask a few questions the report brought up.

The report states that, in regards to younger P/C consumers, the brand can command a higher premium. Do you find this surprising and why?

DH: Initially, yes. We thought many of the millennials would be active in price competitive shopping and that price would be dominant. However, when considering the findings, we realized that this segment is accustomed to massive ad campaigns focusing on the importance of brand across all industries and the finding became less of a surprise.

What do you see for the future of online P/C business? Will it eventually be completely online or will customers always demand face time?

DH: There are many products within the P/C spectrum. Many of those products will fit and move more quickly to a web-based sales mechanism. For some products, we do see a continued shift to more “direct to company” or “aggregator” usage over the next five to 10 years. However, in no way will consumer interaction be completely web based. Companies will counteract by bundling products prompting consumers to seek more info from a live person. Also, in our study, consumers resoundingly stated that when it comes to servicing, especially when making a claim or purchase they want personal interaction.

The report states that a mere 31% of P/C consumers in Brazil are satisfied with their claims experience, as compared to 71% in the U.S. and 68% in Mexico. Why do you think there is such a vast difference?

DH: The difference in Brazil can be attributed to several factors. While in the Americas the top three measures insurers can take to improve the claims experience were: Dealt with my claim more quickly (33%), provided a better level of communication with me during the claims process (32%) and provided a more personal service (23%).

In Brazil, the same top three measures were noted, but all were mentioned by more than 40% of the customers. For instance, more than 50% of the customers expect quicker service.

Additionally, as a response to the low interest rate environment in Brazil, some insurers directed their focus on efficiency gains. One of the steps some Brazilian insurers took was to tighten their negotiations with claims services providers resulting in a reduced quality of claims servicing to customers.

In your opinion, what was the most surprising finding of the Global Consumer Consumer Insurance Survey 2012?

DH: Actually, we found three. The first being the favorable position of the insurance industry overall as a trusted provider of insurance and other investment products. The second being the degree to which consumers desire to purchase multiple products from the same product provider. And the third is the degree to which the insurance industry is behind others in rewarding loyal customers and conducting customer retention programs.

How Risk Managers Can Prepare for the Hard Market

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The following is a guest post written by Michael Korn, managing principal at Integro Insurance Brokers and a senior member of the firm’s property insurance practice.

Australian floods, a New Zealand earthquake, Japan’s earthquake and tsunami, tornadoes and flooding in the Midwest and South, and the exceedingly rare tornado in the Northeast that ripped through Massachusetts lead a long list of catastrophic events that have hit the property insurance industry hard in just the first six months of 2011. They may claim yet another victim — soft insurance premium rates.

Making matters worse, there may be little time to absorb the first-half barrage. Risk Management Solutions (RMS) 11.0 is sending shock waves through wind exposed insurer and insured portfolios. Windstorm prognosticators are predicting an “above average” number of hurricanes this season, which officially began June 1, supporting growing speculation the market is about to harden. Are observers prescient or wrong?

To look ahead, let’s briefly look back. For a number of reasons, including the vast amount of available capacity, the types and locations of the catastrophes we’ve experienced globally and the delayed implications of potential contingent time element losses not yet realized, the commercial insurers have proven incredibly resilient in their ability to absorb billions of dollars in losses. However, you begin to get the sense that the hard market bow has been stretched back to nearly its limit and just one medium-sized storm could be enough to spring the arrow.

So far, we have seen a wide range of insurer reactions to the untoward first-half 2011 events. For incumbent carriers, the days of rate reductions are almost universally a thing of the past. Taking their place, most carriers are now looking for flat or modest increases in rates. Still others are looking for significant increases, especially if the insured portfolio is heavily wind exposed. Carriers looking at new opportunities appear to be the exception; they’re still being aggressive. Against this backdrop, there continues to be enough capacity for most programs to encourage new players and counterbalance the incumbents looking for increased pricing.

Bear in mind, new capacity that can counter the push for higher prices is not a phenomenon that can or will last forever. Rating agencies’ intensifying scrutiny of insurers and their plans to manage increased modeled portfolio loss estimates will inevitably lead to a reduction in capacity offerings. July 1 CAT treaty renewals have seen prices rise — a dramatic reversal after many years of reductions. Some insurers will buy less reinsurance to save money while others will pass on the premium increases to the ultimate buyer, the insured.

A hard market is not a great environment for insurance buyers, of course. But there are some things risk managers might do to help ease the pain of the expected market swing. Knowledge is the coin of the realm.

Consider several suggestions:

  • Know how the models work and your “probable maximum loss.” Gather secondary modeling characteristics and run those. Many insurers use default settings generating a higher PML than when accurate specific data is input; this could make a difference in the amount of capacity offered and the price.
  • Know how your deal is structured. Is there facultative reinsurance being purchased? How much? Who’s broking that on your behalf? How much does it cost?
  • Take care of the inexpensive outstanding human element recommendations that will make you a better risk.
  • Dust off the business continuity plan and update it. Bring in your supply chain folks and if they have a good story to tell, get them in front of your insurers to tell it.
  • Diversify your insurer portfolio if possible. Utilize the markets in the U.S., Europe, Lloyds, Bermuda and Asia to spread your risk. Each of these markets moves at a different pace and will increase the flexibility of your program.

Taking these steps to proactively manage the insurance cycle risk will put you in a much better position if and when the wind does blow.

Policyholders Expect Rates to Remain Flat or Increase

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Given all the major disasters and other market realities of the past year, it’s hard to doubt that the hard market will soon be here. Policyholders have enjoyed a near-unprecedented stretch of favorable insurance premium prices, but it seems that even they now know that the jig is up.

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According to a recent survey by Barclays Capital, nearly three-fourths of buyers no longer expect any rate decreases.

Commercial property/casualty insurance prices are stabilizing, with 70 percent of buyers expecting at least flat rates after years of declines, Barclays Capital said Tuesday.

The firm’s survey of 50 large buyers showed insurers are more disciplined, with multiyear deals absent from the market.

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Just six months ago, 15 percent of buyers were signing such deals, which insurers offer when conditions are weaker.

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Barclays said 30 percent of survey respondents expect their insurance rates to rise and another 40 percent expect flat rates.

It was nice while it lasted for risk managers, but the very nature of a cyclical market means that it couldn’t stay here forever. So now the options are likely to accept paying more for the same coverage or buckle down on loss control and raise your risk retention levels.

Either way, the market is unlikely to shift radically at either the mid-year or January 1 renewals (nor will the hardening apply monolithically across all coverage lines), so risk managers — particularly those who realize that insurance is just one way to way to transfer risk — should be able to adjust just fine.