There has been plenty of speculation around the future of the US property re/insurance markets after 2017’s drastic catastrophe season, which saw three major hurricanes (Harvey, Irma and Maria) make landfall and devastating wildfires in California.
Rates did increase slightly in the final quarter of the year as a result of natural catastrophe losses, and forecasters correctly anticipated a hardened reinsurance market as of January this year. In addition, underwriters have suggested the need for a rate environment that would push the property markets back to profitability.
A hardening rate environment is not always to the detriment of the client, according to Mike Andler, executive vice president and head of the US property insurance practice at Lockton. Rather, a hard environment can spawn more competition because of the excess capital and capacity in the marketplace.
“The market’s in a similar situation to how it was after Hurricane Sandy where we saw a hardened rate environment, that ultimately reacted the opposite way to expectation because of there being so much capacity in the marketplace,” Andler told Insurance Business at RIMS 2018. “Underwriters are challenged to return to profitability and clients have an opportunity to chase an oversubscribed market with heavy capital. That’s creating supply and demand economics that are, ultimately, in my opinion, still favorable for most clients.”
Another positive to arise from catastrophe-stricken 2017 is the emergence of private flood insurance programs. The National Flood Insurance Program (NFIP) was challenged during Harvey, Irma and Maria, thus opening opportunities for others to offer replacement programs. Private flood insurers have more agility to offer broader coverage and more efficient pricing, which clients can take advantage of moving forwards.
“When it comes to fire, windstorm and earthquake perils, we’ve determined really good ways to protect and mitigate against them. But flood, because of the massive inundation of water, is much more difficult to mitigate and control,” Andler said. “Therefore, underwriters limit coverage, and the coverage they do offer is often more expensive than what clients are willing to pay.
“An emerging trend that might be a solution to that problem is a heightened interest in parametric trigger insurance products. If you look at all the losses caused by the 217 catastrophes, only about one third of economic losses were insured. There’s an increased desire to fill that insurance gap, which could be met by parametric products that trigger differently to traditional indemnity products.”
Parametric insurance products can be triggered by things like wind speed, ground motion or water level. There’s heightened interest in these products because of the intense catastrophe activity and losses the US suffered last year, Andler explained.