Disasters likely to cause hike in insurance rates

New York: US businesses will probably pay more this year for property coverage after insurers took losses from natural disasters and investment income declined, Marsh and McLennan Companies' insurance brokerage said.

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

Travellers Companies, the insurer in the Dow Jones Industrial Average, and American International Group 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 US risk practices leader, said in an interview. Reduced investment returns and a catastrophe model change are also contributing to the shift, he said.

Compensation gains

US commercial insurance rates rose 2.8 per cent in the fourth quarter, according to a survey by the Council of Insurance Agents and Brokers. The increase was led by gains in workers' compensation and commercial-property coverage, the trade group said in a statement.

"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 (Dh385.7 billion) in insured losses last year, according to Munich Re, the world's largest reinsurer. About $25 billion of those losses came from US storms, including the tornado that levelled parts of Joplin, Missouri, in May. Irene, the first hurricane to make landfall in the US 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 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 per cent in 2012. Workers' compensation and directors-and-officers' coverage may also rise this year, the broker said.

Marsh and McLennan, the second-biggest insurance broker, charges fees for helping clients buy coverage. The company rose 16 per cent last year, trailing only Chubb among gainers in the 22-company S&P 500 Insurance Index.

• $105b: in insured losses caused by catastrophes last year
• $25b: of those losses came from US storms