Property-catastrophe headed for softest market since mid-90s

After a period of pricing stability, competition is growing and producers must stay on top of developing trends.

Environmental

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A combination of low insured catastrophe losses and an influx of private equity into the insurance industry has made the property-catastrophe market the softest it has been since the mid-90s. That’s the message from wholesale broker NAPCO’s “State of the Market” report and its CEO, David Pagoumian.

Drawing on its own market insights as well as supporting industry reports, NAPCO took a look at property-catastrophe industry performance in 2013. Characterized by few losses and new capital, the sector is in a state of flux that means big changes on the horizon.

Already observable is a rate reduction across the majority of accounts. According to Pagoumian, most policyholders are seeing rate reductions of 5% to 25% depending on the variables of their loss history. It’s a new trend, but doesn’t quite match the huge rate reductions seen in the mid-90s.

“The last soft market I saw as in the late 90s—probably from ’95 to 2001 up until 9/11,” Pagoumian told Insurance Business. “However, that market was a lot softer than the market we’re experiencing today. It wasn’t uncommon to see a 40% to 50% rate reduction on a deal during the late 90s. Today, if those deals do emerge, it’s probably because they just weren’t placed properly.”

Additionally, a handful of markets are actually seeing rate increases rather than the general steady decreases experienced in the rest of the industry. The frame habitational and commercial flood insurance markets remain “difficult,” according to the report, with deductibles low and claim frequency high.

Carriers also struggle with a history of insureds providing inadequate valuations, which could lead to insufficient coverage in the event of a loss.

Pagoumian believes the new market, influenced by the heavy flow of private equity, will continue to evolve. In order to survive, he warns agents and brokers to specialize and to “avoid complacency.”

“What I really wish I could get across to all retail brokers is ‘Beware of complacency,’” he said. “The market changes daily—that’s our new reality. The softer environment will continue to make the professionals professional.

There’s new money coming into our space, and when you throw money into a new area change is inevitable. In an industry that isn’t as quick to change as it should be, I think what we’re going to see in the next six years is a new wave of the industry. We need to embrace it and try to ride this thing.”

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