The amount of risk capital required to support insurance is now much greater, says Heather Masterson, director of corporate marketing for American International Group (AIG) in Canada.
Insurers now have to realistically prepare for the worst case scenario because that is what they faced on September 11."We can no longer say 'this can't happen', because it has."
says increases will certainly run through 2002 and 2003, as insurers will not see results in terms of earned premiums for at least another year.Vining thinks it could be 2005 before risk managers see a let up in hardening.In a recent report, U.S. rating agency Fitch predicts a return to soft pricing no later than 2003.
The current hardening of the price cycle, which was originally predicted to be mainly focussed on "losing" lines of business, has swept across all lines.Part of this is in reaction to September 11, where losses were seen on a variety of lines of business -- life insurance, workers compensation, aviation, property (especially commercial property) and business interruption.After the WTC
, one of the hardest hit developments was Brookfield Properties, which saw extensive damage to buildings surrounding the Twin Towers, including its Liberty Plaza development.
adds that corporate buyers should also expect the trend to short-term contracts, rather than such things as three-year deals, will continue and increase now.
Companies will face not only the unavailability of terrorism coverage, but also cyber exclusions, environmental exclusions and more."Forget the throw-ins, we're talking about the big stuff," Vining notes.
Tightening the screws
There has been some criticism of the insurance industry, suggestions that insurers may be using September 11 as justification for rate hikes and limitations that are too fast and too severe.
The closure of Copenhagen Re and other small reinsurers, others cutting lines of business and the drought in retrocession markets is being felt by insurers, Masterson
says.This lack of capacity is in turn being translated into the primary market and being felt by risk managers.Several insurers have cut lines of business, sold unprofitable lines and for certain covers there simply is none to be found.
says programs that used to have a $25,000 retention have been rising up to levels as high as $2 million.