Property Insurance Premiums Flatten

An influx of capital is starting to make the losses spawned by Superstorm Sandy a thing of the past – except for companies directly affected by the hurricane.

“The $64,000 question here,” Al Tobin was saying, “is what type of event is a market-changing event?”

Tobin, national property practice leader at Aon Risk Solutions, was talking about the market for commercial property insurance. His point?  Devastating as SuperStorm Sandy was, it didn’t have a long-term impact on the prices companies pay for such coverage. Rather than remain high after the hurricane, those rates have flattened.

The need to protect against the loss of a corporation’s assets and the interruption of its operations, however, naturally leads to speculation about the kinds of natural or human-generated disasters that could break the back of a company.

Superstorm Sandy, the 2012 hurricane that struck the Northeast, certainly had the makings of such an event, particularly to the people who lived and worked in the region. Indeed, it was one of the rare times that the term “superstorm” has been used.

To Tobin, even though Sandy was, dollar-wise, the most devastating natural disaster of last year, claiming $25 billion in insured losses, it falls short of a real game changer — in property insurance terms, at least.

The Aon broker’s benchmark for “a sustainable market change” in property coverage — a stiff upward rise in rates plus a decrease in coverage over two or three years of insurance renewals — is $100 billion in insured losses. Hurricane Katrina, at  $76.3 billion in insured losses in terms of 2012 dollars, comes closer.

Don’t get me wrong. Sandy materially affected many, many businesses in New Jersey, New York and Connecticut,” Tobin says. “But what that says also is that it was a regional event, though obviously a horrible one, in that people lost their lives.”

A house destroyed by Superstorm Sandy.

Devastation in the wake of Superstorm Sandy (Photo credit: USACE HQ)

Because the impact was geographically limited, it hasn’t had a sustained impact on the cost and availability of property insurance, the broker said, noting that an influx of capital into the property-casualty insurance business has more than covered insurance industry losses.

The influx of the new risk-bearing capacity — for casualty as well as property perils — has come in the form of at least five new players in the market, including Berkshire Hathaway. Tobin’s employer, Aon, has formed a property insurance outfit in tandem with Warren Buffett’s company.

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