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Insurance Rates Up Sharply in Katrina's Wake

February 1, 2006

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Property insurance rates have increased sharply in the wake of Hurricanes Katrina, Rita and Wilma, according to a survey by the Risk and Insurance Management Society (RIMS).

Reversing a two-year trend of steadily falling property insurance premiums, some commercial insurance buyers saw property premiums increase by as much as 33 percent, with a median increase of eight percent, in the fourth quarter, the survey found.

The premium increases were driven by the record-shattering losses caused by last year's disastrous spate of hurricanes, estimated to have cost the insurance industry nearly $58 billion.

The survey reviews current policy renewal prices as reported by corporate risk managers.

"The insurance market shrugged off the record hurricane losses of 2004, but the combined impact of Katrina, Rita and Wilma was clearly more than the market was ready to absorb in 2005," said Karen Beier, a RIMS official.

"So far it seems only property insurance has been affected, but it remains to be seen if the rise in property rates will be the catalyst for an overall upturn in prices and a harder market," Beier said.

The RIMS Benchmark Survey is produced by Advisen Ltd., which collects and analyzes the data and provides the technology infrastructure for the survey's online services. The RIMS Survey currently includes information from nearly 42,000 corporate insurance programs, the largest amount of data ever contributed to the survey in its history.

"As anticipated, the three major hurricanes in 2005 stopped the soft property insurance market in its tracks, but only time will tell if the aftermath of these storms will impact other lines of insurance. Also, we don't know if property insurance premiums have hit the ceiling or if they will continue to increase in Q1 of this year," said David Bradford, editor-in-chief at Advisen.

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