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Property Catastrophe Insights

Keep reading for essential info on program conceptualization, marketing, placing and servicing programs.

How to secure greater price reductions in the softening property-cat market

Samantha Kimball Samantha Kimball , 5/9/2014
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As detailed in our previous post, we’ve entered a softer market for catastrophe-exposed property insurance, as companies are reducing prices due to an abundance of capital to be deployed and recent profitability. But brokers may be able to secure even greater price reductions for their clients. To do so, you should consider potential ways to restructure the programs, drive carrier competition, and obtain the most complete and accurate data possible for underwriters. Becoming more granular with construction detail can often reduce “modeled expected loss” and drive down prices even further.

Possible program restructuring is a good strategy for securing price reductions in any market. However, a soft market offers different opportunities that can lead to lower costs and enhanced coverage because carriers generally have a broader risk appetite and, oftentimes, more capacity. For buyers, that means fewer program capacity layers and, thus, the potential for better pricing. Large accounts typically have an easier time restructuring and securing new capacity than smaller ones, because they have significant critical premium mass.

Understanding the growing and changing role of catastrophe models in property-cat placements is essential. Insurers depend on catastrophe models to help them understand and gauge the magnitude of risk and how to price it, but in order for their assessment to be accurate, they must have quality data. Provide insurers with detailed engineering and construction information to give them an accurate view of the risk. In the absence of complete information on a risk, the model will typically default to the worst scenario. By providing detailed information, you put your accounts in a better bargaining position with underwriters. In addition to complete construction, occupancy, protection, and exposure (COPE) data, you can increase your negotiating and data credibility with accurate asset replacement values, in particular. In the end, model results based on thorough data can allow underwriters to justify more competitive pricing. For more, download our full Spring 2014 Property Catastrophe Insights: State of the Market report.