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HomeMy WebLinkAboutMMIA - Insurance marketMIA Montana Municipal Insurance Authority PO Box 6669 Helena, MT 59604-6669 Please distribute to all appropriate personnel and post in 6spicuous p ac . Nov 1 pppl Risk Management Bulletin CITY OF LAUREL TO: ALL MMIA PROGRAM PARTICIPANTS R.M. BULLETIN #64 FROM: ALAN W. HULSE, RISK SPECIALIST MONTANA MUNICIPAL INSURANCE AUTHORITY DATE: October 25, 2001 RE: STATUS OF THE HARDENING INSURANCE MARKETPLACE Those of you who read and pay attention to the MMIA Newsletter will recall the article that I authored in the June 2001 edition titled "The Consequences of Hardening Insurance Markets". In this article I explained that we were in a hard market, and what the potential consequences of that phenomenon were. The long and short of the article is that due to intricacies of the insurance market place, companies have become more select in the risks that they are willing to take on. The underwriter's are looking at cutting coverage, and increasing premium, as well as demanding much more information on exposures than they have in the past. Every indication as of June 2001 was that we were experiencing the onset of a hardening insurance market. Cost of insurance was going up, coverage was being cut, and underwriters were becoming more selective about the exposures they were willing to take on. Some of the reasons causing this current market trend are attributed to, among other things, poor litigation trends, poor investment climate, and poor underwriting results. The bottom line is the insurance market place is predicated on the free market system. They assume the risk of their insured's with the intent of making a profit. When they stop making profit, or aren't making adequate profit to justify the exposure they are taking on, they have to make adjustments (charging more premium, cutting coverage, or assuming more acceptable risk). These hard market conditions were in place prior to the tragedy of September 11, 2001. The tragic events that took place on September 11, 2001 changed the world as we know it, and this includes the insurance market. Estimates on the cost of the terrorist attacks of September 11, 2001 to the insurance industry range from $30 billion to $58 billion. To put this in perspective, Hurricane Andrew in 1992 resulted in $26.5 billion dollars in property damage and Hurricane Floyd resulted in $6 billion in damages. This is the largest insured as a service to our members. I no articles are not a substitute for the Memorandum of Liability 3terminations are made on a case-by-case basis, and can only be viewed on the unique facts of loss event we've ever known and it will have far reaching impacts on all insurance makets including liability, work comp, health, property and life insurance. We are almost certain to see worse market conditions than were experienced in the mid- 1980's which had severe consequences for cities and towns nationwide and spawned the local government self insurance pooling process. So what can we expect in the insurance industry as a results of the hardening of the market coupled with the September 11, 2001 tragedies? Only time will tell, but one thing we are already seeing is that coverage for local government will be increasingly difficult to find. We have already been contacted by cities whose property insurance premiums will either show increases of 200% or not be renewed. Those who do find coverage will likely experience significant rate increases and cuts in coverage along with a demand for more information from the underwriters. The bottom line is that placements will be very difficult in the coming year and your agent may need plenty of time to try to get your business placed. We are confident that the MMIA property program will remain viable for our existing members, however placing new members may be more difficult than in the past and will certainly require more lead time than we are used to experiencing. If your community is commercially insured, start communicating with your agent at least 90 days prior to renewal. If they request additional information, respond as quickly as possible. Allow as much time as possible for your business to be placed competitively. The MMIA will be spending the next several months gearing up for our property insurance renewal. We are trying to anticipate the demands of a very volatile market place and we need your help. We will be visiting many of our program participants to complete valuations of their properties. We are already working on our July 1, 2002 renewal and will be in communication with our members to complete that process as accurately and timely as possible. We feel that this effort will be critical in placing your business competitively. If you are not a member of the MMIA Property Insurance Program, I would encourage you to work with your agent to start early on renewal, or if you are planning on bidding your insurance this year, again start the process early. Don't be caught off guard by the volatility of the markets. Be prepared and start early.