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Increasing Premiums for E&S Lines
The way the weather has been changing
over the past decade has increased the amount of damage
done, which has contributed to the significant premium
increase for Property & Casualty (P&C) and Excess & Surplus
(E&S) lines insurance. Seven of the ten most destructive
tropical storms in U.S. History occurred between 2004 and
2005, [see catastrophic losses chart from the National Ocean
and Atmospheric Administration (NOAA)] and the outcome of
the damage due to changing weather is that insurance
companies are taking on a lot more risk.
After sustaining such a dramatic
increase in losses, insurance companies have had to find a
new way to evaluate and calculate P&C and E&S policy
premiums. In the underwriting process, a lot of work goes
into calculating potential losses. With hurricane loss for
example, underwriters look at historical weather data from
the past 100 years, the insurer’s inventory of policies held
and the building’s history. The recent year’s weather has
insurance companies wondering if this methodology is truly
reliable. Since 1985, hurricane occurrences have increased
in frequency and severity according to the NOAA. Much
research and discussion was devoted to whether the 100 year
history of Atlantic hurricanes could still serve as a guide
for devising insurance models for future disasters, it was
decided that in the next 10 to 15 years, severe hurricanes
would strike land 30 percent more often than in the past
century, making it unsafe to use the historical baseline to
view future financial risk.
Due to the possibility of future
disasters, in 18 states from Texas to Maine, insurance
companies are scrambling to reduce the risk of major
hurricane-related payouts. For the 43% of the U.S.
population that lives or does business in these states this
means higher premiums, higher deductibles and less
coverage. Premiums are expected to raise anywhere from 20
percent to 100 percent in the Gulf Coast states and the
Eastern Seaboard states, and up to 4 percent everywhere
else. Many people and businesses may be left wondering how
they are going to pay for these outrageous increases, and if
the government is going to do anything to help relieve the
problem.
The US House of Representatives is
scheduled to vote on legislation (HR-5637) that would
streamline regulation of surplus lines insurance and
reinsurance. The bill would eliminate millions of dollars
of inefficiencies and needless processing in order to
expedite the binding of P&C insurance by surplus lines
agents, brokers and insurance companies for policyholders
while, putting guidelines in place to ensure compliance with
regulations. These changes are needed where access to
insurance coverage has dwindled due to the aftermath of the
2004-2005 hurricane seasons. The bill will help consumers
have access to affordable P&C insurance in these uncertain
times ahead.
Avalon Risk Management, Inc. expects
this trend to affect its E&S policies in the future. It is
evident that these environmental conditions will impact the
insurance premium for difficult coverage such as
earthquakes, floods, and windstorm.
For further information, please
contact your local Avalon office or Kim Beiswanger, Product
Manager at Avalon’s corporate headquarters. Kim can be
reached at her direct line: 847-700-8076 or via email at
kbeiswanger@avalonrisk.com. To view a directory of
Avalon’s office locations, please visit our website at
www.avalonrisk.com.
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