Sunday, June 06, 2010

From the P&C Files: Rate Increases Looming

But not from the usual suspects:

"For commercial insurers, the Gulf of Mexico oil spill and the volcanic-ash disaster may prove relatively light in claims costs but may give the firms justification to raise premiums for some types of coverage."

PresBo's Gulf Oil Catastrophe (aka Deepwater Horizon) is estimated to have cost over $600 million so far, but the final tally is expected to top several billion. The good news - if it can really be said to be such - is that "only around 20% of the losses incurred so far in connection with spill are being carried by the industry." The bulk of the cost will be borne by, one presumes, BP and others.

But that's only half the story: the eruption of Mount [unpronounceable] this spring led to thousands of flight delays and cancellations, but that also meant that there were few ash-related damage and business interruption claims.

So why does that presage rate increases? After all, if losses were lower than anticipated, then why would premiums go up? It's more a matter of anticipation:

'[P]roperty coverage for oil rigs is rising, and with the hurricane season approaching, any additional loss in the Mexican Gulf could further bolster pricing. Prices for offshore energy liability insurance are also certain to rise as insurance companies reevaluate the complex risks associated with drilling in deep waters."

While it's tempting to think that this won't affect the rest of us, the reality is that the affected businesses will simply pass on the increases to the consumer. And insurers will also look to spread their rate increases to the larger book, as well.
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