Mother Nature gives property owners and insurers a break

The fierce winds of 2005's record hurricane season continued to batter the commercial property insurance market throughout 2006.

Risk managers, particularly those with catastrophe-exposed properties along the East and Gulf coasts or along the California earthquake fault lines, found themselves facing double-digit and in some cases triple-digit rate increases while the amount of coverage available shrank.

Five hurricanes accounted for $52.7 billion--or 93%--of 2005's $56.8 billion in insured property damage, the Insurance Services Office Inc.'s Property Claim Services unit reported in late January. Hurricane Katrina alone caused more than $38 billion in insured property damage, far more than the total sustained by the property/casualty insurance industry in 2004, and the $27.3 billion in insured damage posted that year was itself a record.

Many liability lines soften

But risk managers seeking to place property accounts in some noncatastrophe-exposed parts of the country, such as the Midwest, found themselves actively courted by underwriters. And for most accounts--catastrophe-exposed or not--the jump in property prices was somewhat offset by a continued softening of many liability lines.

By midyear, general liability rates had fallen by single-digit amounts compared with a year earlier, while excess liability rates had fallen by as much as 10%.

Directors and officers liability rates remained stable or even dropped for many buyers as a feared reinsurance crunch failed to materialize.

Property insurers got a break from Mother Nature as well. Despite initial predictions of above average hurricane activity for the Gulf and Atlantic coasts, 2006 did not enter the record books as an active one. In fact, no hurricane made landfall along the Gulf and Atlantic coasts during the season.

That didn't translate into significant rate relief for buyers, though. By year's end, the best that risk managers with catastrophe-exposed property could hope for were decelerating rate increases, not outright decreases or even a flattening of rates.

Further complicating the picture was uncertainty over what role, if any, the federal government would play in guaranteeing terrorism insurance.

The new Democratic chairmen of the Senate Banking, Housing and Urban Affairs and the House Financial Services committees both promised to move swiftly on extending the federal terrorism insurance program, which is slated to expire on Dec. 31, 2007. But the Bush administration gave no indication that it would support--or at least not block--continuation of the program.

And the news from the hurricane forecasters indicated that there could be trouble ahead. Forecasters predicted that 2007 hurricane season, while not as active as 2005, would be more active than usual.