|Many factors impede '07 insurance rate drops
|By Michael Giusti Bankrate.com
Even though 2006 is looking like one of the quietest years in decades for U.S. insurers, industry experts say any of a number of scenarios could trigger a dreaded blockbuster year with $100 million or more in claims.
In insurance terms, 2006 was tame. By midyear, consumers filed only $5.3 billion in claims -- a fraction of what was filed the year before. A record-breaking hurricane season, capped by super storms Katrina, Rita and Wilma, gave 2005 the distinction of being the costliest year on record for insurers, with $61.2 billion in claims.
But even that record year could pale in comparison to scenarios keeping insurance underwriters awake at night, and which are forcing insurance premiums to new heights in 2007 and beyond.
Insurance companies take past experience into account when they price policies, but they also look at potential new threats. Those potential new threats could be substantial.
Topping the list of insurance nightmares is a major hurricane coming ashore along the New Jersey and New York coastlines.
According to estimates
by the Insurance Information
Institute, or III, a trade group
based in New York, a Category
3 or 4 storm hitting the Jersey
Shore just down the coast from
Manhattan could rack up as much
as $110 billion in insured losses,
with another $90 billion in
And while a major
hurricane hasn't hit the New
York coast for decades, meteorologists
warn that the Atlantic basin
is in the midst of a multidecade
cycle of increased hurricane
Taken as a trend, seven of the 10 most costly hurricanes on record, Katrina, Rita, Wilma, Charley, Ivan, Francis and Jeanne, all struck within a 14-month period between August 2004 and October 2005.
Numbers like that are enough to send most insurers seeking the protection of higher premiums and tougher underwriting standards.
It's no wonder
then why rates for reinsurance,
the policies purchased by insurance
companies to protect them from
catastrophic losses, have increased
by as much as 300 percent in
"It's a supply and demand thing," says Michael Barry, spokesman for the III. Barry says there is a limited number of reinsurers willing to take on hefty risks, but plenty of demand, which pushes up the cost of insurance.
Even with a relatively
claim-free 2006 hurricane season,
Barry says insurance companies
won't likely begin streaming
back into exposed areas, such
as South Florida and the Gulf
"These business issues are rarely made based on one calendar year," he says.
And, it's not just hurricanes that insurance companies worry about.
Insurance analysts say that with ever-increasing development along fault lines in California, it's just a matter of time before a $25 billion earthquake tears through the West Coast.