Bermuda Re/insurance Roundtables
“Reinsurers could well benefit from increased rates in the primary market flowing through into reinsurance, or at least the reversing of a trend of increased retentions.”
cover due to an increase of the underlying exposure. Some clients might try to add flood coverage into their programme, but that’s it. Going forward, this event is a wake-up call for some companies, especially for some primary insurers. They will need to look closely at their original policies and will evaluate the question of whether hurricane deductibles are adequate or if it would be more prudent to implement a wind deductible. The cover of flood exposure may yet prompt a political discussion in the US as so much of the loss will end up with the American taxpayer. Considering the financial situation facing the US budget, there is a definite need for close, intensive discussion regarding how the flood risk can be transferred into the private market. Insurers and reinsurers are willing to take on this risk if they are allowed to underwrite it and price it appropriately.
The expected losses caused by Superstorm Sandy underline the tremendous values located in hurricane-prone areas in the US. The observed migration of the US population to the US coastline is a continuing challenge especially for the insurance and reinsurance industry.
Cooper: One of the fundamental problems with the personal lines
of insurance provided to homeowners in particular, is that the product is not easily understood by the consumer. This issue of deductibles,
wind versus hurricane, is very opaque. That is compounded by wind versus flood, and most consumers don’t understand the nuances. We as an industry have done a pretty poor job of selling and explaining our product. Yes, you have to balance that with the economic reality and charge accordingly, but when our product is sold based on calculations using one methodology and then post-event that’s changed extra- contractually, that causes problems for us as an industry.
Few: Another thing that may come out of Sandy, is that before the
event there was some suggestion that rates had peaked for peak-zone US accounts. There were still increases on the primary side, both property and casualty were in single digits, but there was some fear in the market that those increases would lose some steam. That is less likely to happen now. Sandy will give more force to the need for rates to remain firm.
There was also a trend—and this has been around for years—
of increasing retentions by primary carriers, and as Kean said, the primary market retained a considerable amount of the losses from both Irene and Sandy. That will likely act as a reminder of the value of reinsurance. Reinsurers could well benefit from increased rates in the primary market flowing through into reinsurance, or at least the reversing of a trend of increased retentions.
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