When a flash flood inundated Montana's first territorial capital with tons of mud and debris last July, damaging most of Bannack State Park's 80 historic structures, it was only the latest in a string of catastrophic property losses that has plagued the state in recent years.

That $2.6 million loss (see related story) followed a $1.5 million electronics loss at the State of Montana Data Center in Helena in April 2011 and an $8.1 million hail damage loss in Bozeman, Mont., in June 2010. A day after Bannack State Park reopened on Sept. 9, 2013, a torrential downpour unleashed $800,000 in flood damage on Montana State University's Billings campus.

Fortunately, the state had sufficient insurance coverage and an immediate crisis response plan that enabled it to bounce back quickly from all of those property losses.

But acknowledging the effect its recent poor claims experience would have on its 2014 property insurance renewals, Brett E. Dahl, Helena-based director of the Risk Management and Tort Defense Division for the state of Montana, elected this year to increase the state's per-occurrence deductibles from $1 million to $2 million and eliminate an annual policy aggregate that capped losses at $3 million.

Property insurers, led by Boston-based Lexington Insurance Co., a unit of American International Group Inc., were seeking a 27% premium increase to $2.9 million, according to Mr. Dahl. Instead, by eliminating the annual aggregate and increasing the per-occurrence deductible, the premium for the property program, which renews July 1, increased 15% to $2.6 million.

In addition to its property coverage from Lexington, Montana purchases property insurance from Lloyd's of London, Great American Excess & Surplus Lines Insurance Co. and XL Insurance America Inc. The state also participates in the Alliant Property Insurance Program for public entities.

%%BREAK%%

“Like a lot of other public entities and corporations, and like this country, we've had historic losses the past two decades,” he said.

Without the annual aggregate, “if we have four $2 million losses in a year, we would have to pay $8 million out of my fund,” Mr. Dahl said, referring to the money the state collects from Montana agencies and universities and uses to pay for insurance and provide loss control services, among other things. “It would have cost us a few hundred thousand dollars a year to cap our annual exposure. We looked historically at our losses and saw we never really had over three of those cat losses in a year. We've had one or two a year over the past 10 years, but never over three, so the annual aggregate wouldn't have done us a whole lot of good, and it would have been expensive to keep it in place. We've just got to believe there are better days ahead.”

The rate increase will be passed on to the state agencies via the assessments based on their individual property exposures. The Risk Management and Tort Defense Division also is re-appraising all of the state's property values to ensure that the coverage limits purchased are adequate, Mr. Dahl said.

State agencies and universities can earn a discount of up to 10% on their property insurance premium contributions by establishing comprehensive and effective property loss management programs, which include periodic self-inspections, preventive maintenance processes, engineering controls, building plan reviews, cold-weather precautions, and infrared and thermographic surveys (see related story).

The Risk Management and Tort Defense Division also offers loss mitigation grants to cover the cost of projects, equipment and training to prevent or mitigate property and other types of losses (see related story).