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September 11th - What are the possible ramifications
to your Property and Casualty Insurance Program?
There is no simple answer to this question. Immediately following the World
Trade Center (WTC) tragedy, the insurance industry began a detailed review
of what its
losses were estimated to be That number will be an escalating guess for many
months, possibly years.
Prior to the event, the insurance industry was on a course set for a
continuing hardening of the market with estimates of approximately 10%
increase in rates for year-end 2001 with similar numbers for 2002. With what
has happened, those estimates will become reality with the possibility that
it could be even higher for 2002.
The most immediate change was the posting of a "Watch List" of a large
number of insurance companies by several rating companies such as A.M. Best
and Standard and Poors. Many of the premier companies of our industry were
added to that list, based on projections of their share of the losses
associated with the disaster. Most of these companies have been quick to
address the media blitz by saying that they were prepared for this type of
catastrophe and that through their reinsurance contracts, their firms will
remain stable. We believe, that for the most part, that will be the case.
Some smaller companies, particularly smaller reinsurance companies, may have
issues that cause them to look for additional financing or merger activity
in order to firm up their financial statements. But overall, we feel the
insurance market will rebound.
As insurance brokers, it is our job to keep our clients advised as to what
the ramifications are to them individually, as well as globally. Prior to
the WTC, we were telling our clients, as a whole, to prepare for a 10%
premium increase in 2002. Each client is different, and based on loss
experience, loss control and exposures some would have seen higher
increases. Each line of business must also be considered in these estimates.
Those with large property schedules or difficult Workers Compensation
exposures, were likely to see higher premiums. Following the disaster,
we feel those numbers could edge up an additional 5% overall. Again, each
line must be considered and some clients may see much larger increases and
some may see smaller rate hikes.
As business owners, what can you do? We believe the most important
thing to do is to review your insurance program more seriously than in the
past. Even the most sophisticated buyers must look at their insurance
portfolio not just from a cost standpoint, but from a coverage view, in a
way that may have been taken for granted in the extended "soft market" of
the past fifteen years. Things such as "property schedules", deductibles,
loss control, claims reviews and spread of risk are areas for review. A
careful and ongoing analysis is a must. At Bollinger we are prepared to
assist you in this area. Catastrophe planning is a very hot topic, and if
you did not set a plan into place before September 11th, now is the time to
begin that process. We are happy to say that our plan did do the job for us
following the WTC, but we have already made changes which have tightened up
procedures in a number of areas where we saw need for improvement. Our
recommendation, have a catastrophe plan in place, no matter what the
size of your firm is. Bollinger can help you in that effort.
What lines will be affected the most? Make no mistake; property
insurance will change immediately. In the future, insurance companies will
be forced to include terrorism endorsements in their forms. Immediately
following the WTC, the insurance industry did the right thing by affirming
most coverages. However, reinsurers (the companies that insure insurance
companies), have said that when their contracts with these companies renew,
there will be language included that will change the wording in many
property policies to exclude certain types of events and the protection
which will be afforded. It will be a major issue facing our industry for the
immediate future.
Capacity will also be a major issue. This has been evolving over the past 12
months, and following Sept. 11th, will be taken to another level as respects
property insurance. Probably one of the most important issues will be
valuation. The days of "guaranteed replacement cost" and "Agreed value" will
be tested. There will be an industry push for valuations and appraisals as
never before for the mid-size businesses.
From the Workers Compensation standpoint, the market was on a course
of tightening up and that will continue. WTC payments for Workers
Compensation losses will be staggering, but as a market, which is regulated
by state laws, rates will be guided more by overall conditions than an
individual event.
Other Lines of Coverage - Some of the specialty coverages will become
more important. Kidnap and Ransom, long thought of as a form used
only for those people who leave our borders and go oversees, will have a
heightened presence in our marketplace. The price of that coverage will
undoubtedly skyrocket. Directors and Officers coverage, where rates
have been on the rise since the Tech boom began to fizzle, will be under
increased pressure due to layoffs in a number of market segments. We think
General Liability and Auto will continue the course they were
on before WTC, but will harden a minimum of 10 % in the next 12 months.
As buyers, what do you do? - As your insurance professional, we want
to advise you in the ways you can use insurance and risk management
techniques to protect your assets. This not only includes your property, but
your employees, your income, your goodwill and everything else that exists
on the financial statements of your company. Our recommendation is simple -
be prepared to deal with your insurance program as one of the top decisions
you will make in your business this year. At Bollinger we are gearing up for
the changes in the market by having our people trained properly to deal with
your needs. We are staffing in those areas that will allow us to react to
the changes in the market. One of our goals, which will never change, is to
place your insurance program with the markets that provide the proper
coverage, at the best price available and that will be able to respond at
your time of need.
Many things changed on September 11th, which have affected all of us. At
Bollinger, our employees are even more aware of how important their jobs are
and the instrumental role they play in our clients' well being. Not just the
clients who have been directly affected by this tragedy, but all clients who
need assurance that if they have a disaster, we will be there to help get
them back into business as quickly as possible.
Feel free to call on your Bollinger representatives with any questions you
may have regarding your insurance program.
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