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Aon US Property COO: Market Rates Flat to 10% in 2013

Source: BestWire

Posted on 27 Feb 2013 by Neilson

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AonThe effects of Hurricane Sandy on the U.S. commercial property rate environment will linger into the first half of 2013, while accounts without Gulf and East Coast exposures will likely be flat, according to a recent report from Aon.

"I think you're going to see a flat to worst case 10% marketplace for most accounts," said Mike Andler, chief operating officer of U.S. property for Aon. "Accounts that saw a significant Sandy claim will likely get some element pressure above that to pay back for some of their loss over time."

The report found that average 2012 rates were 2.8% higher than in 2011, with more catastrophe-exposed national account rates up 5.3% in 2012. The report revolves primarily around the largest of Aon's approximately 1,000 commercial property accounts, Andler said.

"We're at record highs for surplus right now in the global market for capacity," Andler said. "There is just so much competition that's the reason why you're seeing most of that flattening of the marketplace in 2013 forecasted."

Deductibles and retentions for flood and windstorm in the Northeast will face more upward pressure in 2013, the report found, while all other property deductibles will likely be flat. The vast majority, about 95%, of accounts in 2012 maintained deductible and retention levels, the report said.

"What we're seeing more is the pressures of storm surge What is it? Is it flood? Is it going to go into the named-storm definition? And if it does, what limits to people have to buy," Andler said.

Andler said if flood ends up as part of a named-storm definition, then clients will need to buy more flood coverage. More flood coverage would likely lead to higher prices, he said. The report said in the next year some insurers will try to make changes to windstorm and flood definitions along with deductible clarifications.

It could take some time before there is increased pressure in the flood market because there are few proven flood models in the market, Andler said. Catastrophe modeling firms will be working to enhance their storm surge models by poring over data collected during Sandy (Best's News Service, Feb. 13, 2013). Andler said some cat modeling firms are working on flood models and noted that Aon's Impact Forecasting has a flood model.

"Once that gets into the marketplace and underwriters start underwriting like they do quake and wind ... that's maybe when we could see some more movement in the marketplace," Andler said. "It's going to say they need to charge more money to fund for those floods over time."