U.S. Commercial Property-Insurance Rates to Climb, Marsh Says

January 27th, 2012 by admin | Comments Off | Filed in News

(Bloomberg) — U.S. businesses will probably pay more this year for property coverage after insurers took losses from natural disasters and investment income declined, Marsh & McLennan Cos.’s insurance brokerage said.

Half of U.S. clients surveyed by broker Marsh Inc. said the cost of property insurance rose in the last six months of 2011, with increases of 10 percent or more among customers at risk of losses from catastrophes, according to a report to be released today by the New York-based company. That trend is likely to continue this year, the broker said.

Travelers Cos., the insurer in the Dow Jones Industrial Average, and American International Group Inc. are among property-casualty providers raising prices after storms and earthquakes led to record industry losses last year. Insurers’ investment income is under pressure as interest rates near historic lows erode yields on bond portfolios.

“It’s really the catastrophe-exposed risks around the world that are driving” rate increases, Dean Klisura, Marsh’s U.S. risk practices leader, said in an interview. Reduced investment returns and a catastrophe model change are also contributing to the shift, he said.

U.S. commercial insurance rates rose 2.8 percent in the fourth quarter, according to a survey by the Council of Insurance Agents & Brokers. The increase was led by gains in workers’ compensation and commercial-property coverage, the trade group said in a statement yesterday.

Losses Were ‘Huge’

“Prices rose in the face of declining underwriting profitability, dwindling reserves and huge catastrophic losses,” Ken Crerar, the council’s president and chief executive officer, said in the statement.

Catastrophes worldwide caused a record $ 105 billion in insured losses last year, according to Munich Re, the world’s largest reinsurer. About $ 25 billion of those losses came from U.S. storms, including the tornado that leveled parts of Joplin, Missouri, in May. Irene, the first hurricane to make landfall in the U.S. since 2008, caused $ 7 billion in insured losses.

Insurers’ investment income has come under pressure as higher-yielding bonds mature and proceeds are reinvested at lower rates. The Federal Reserve, led by Chairman Ben S. Bernanke, repeated its view last month that economic conditions warrant “exceptionally low levels for the federal funds rate at least through mid-2013.”

Clients may face rate increases for other types of coverage, Marsh said in the report. The cost of general liability insurance may increase by as much as 5 percent in 2012. Workers’ compensation and directors-and-officers’ coverage may also rise this year, the broker said.

Marsh & McLennan, the second-biggest insurance broker, charges fees for helping clients buy coverage. The company rose 16 percent last year, trailing only Chubb Corp. among gainers in the 22-company Standard & Poor’s 500 Insurance Index.

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Little Known Homeowners Insurance Risks: Law & Ordinance Coverage

January 27th, 2012 by admin | Comments Off | Filed in Information And Tips

You’re a smart homeowner. You’ve always carried enough homeowners insurance. You’ve reviewed your policy regularly and added coverage when you made improvements. You even have supplement flood and earthquake policies, just in case. So imagine your shock when a fire destroys half your home and you learn that changes to your local or state building codes are going to add 50% to the cost of rebuilding…and your insurance isn’t going to pay it because of Ordinance or Law exclusions.

Regarding Ordinance and Law coverage, the Insurance Services Office, a leading information source for the property and casualty insurance industry, states in its Commercial Property Causes  of Loss forms that insurers will not pay for loss or damage caused directly or indirectly by “the enforcement of any ordinance or law: 1) regulating the construction, use or repair of any property; or 2) Requiring the tearing down of any property, including the cost of removing its debris.” A similar exclusion is included in most other property
insurance forms, including homeowners.

The exclusion is the insurance industry’s reaction to ever-changing codes that specify more expensive materials or construction and installation methods to rebuild a damaged property, shifts in zoning laws that
calls for expensive building, lot size or frontage requirements and restrictions, and stringent environmental and pollution control laws governing demolition or reconstruction. Some laws even designate that when a certain percentage of a building has been damaged, then the rest of it must be destroyed before you can begin to rebuild. And if you live in an area that is prone to earthquakes, floods, or hurricanes, you’ll certainly face prohibitions about where, how or whether you can rebuild.

Essentially, your risk as a homeowner falls into three areas:

  • The loss of value to the undamaged part of your home that has to be demolished or modified to meet current codes, or when the building damage is greater than the percentage allowed by code, or when rebuilding is not allowed under current code.

  • The cost to demolish and remove debris from the undamaged part of your home that has to torn down (your insurance will cover removing debris from the part of your home that was destroyed).

  • The increased cost to repair or rebuild to meet current code.

So, what can you do to avoid unpleasant surprises and protect your property? Talk to your insurance agent and discuss your risk exposure. Some insurance companies now offer Ordinance and Law coverage that
will take care of the cost to tear down the undamaged part  of your home and the cost to rebuild it to current code. Your agent can help you determine how much coverage you need.

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