The impact of September 11 will become evident in the next June renewal season with further steep climbs in premiums now predicted. According to an interim survey of the industry released yesterday, all classes of business face much steeper rises than were predicted just seven months ago.

Liability rate rises in June will be 32% – double the figure predicted earlier. The survey, which corrects figures collected pre-September 11, was compiled by JP Morgan and Deloitte Touche Tohmatsu.

The survey found that since June 2001, domestic insurance costs have increased by 8%. The reported 20% increase in commercial insurance costs means a return to pre-1993 levels. 

The past six months have also seen an average increase in public liability cover of 28%, property 25%, PI 20% and D&O 19%. Public liability has increased by an average of 28% for renewals over the last six months.

JP Morgan senior analyst Shane Fitzgerald said insurance companies are no longer willing to underwrite the risk due to the high frequency and size of the claims. “It is a similar story in the indemnity areas for professionals and company directors,” he said.

Deloitte's National Insurance Chairman Peter Caldwell said the increases “have been a nasty shock for business”, which had been enjoying historically low rates due to intense competition in the insurance industry. “But the spate of mergers and collapses in the industry, in part a consequence of unsustainably low pricing, has served to magnify a problem where community expectations for compensation are out of kilter with business and consumer capacity to pay.

“Increased reinsurance costs due to the impact of the September terrorist attacks have been overlaid onto this scenario,” he said. The major driver of premium rate rises has been the falling availability of capacity.

Mr Caldwell said September 11 forced insurers to examine the premium rates they were charging for the risk being covered and determine whether the risk/reward position was appropriate. Given the significant reduction in rates during the mid-1990s, in most cases the risk/reward position was inappropriate.

Although house and contents insurance has also been impacted by the spate of recent disasters, the survey showed generally better results for householders. “Future increases in domestic motor vehicle insurance should be lower with increased competition due to the entry of banks into the market,” Mr Fitzgerald said.

The survey also indicated disparities between brokers and underwriters, in that brokers’ expectations were generally higher than those of the underwriter. It also revealed the obvious fact that underwriters have walked away from some risks, which has forced brokers to find alternative sources.

Following are the average rate changes. The first number is the change already experienced for June-December 2001, followed by the latest expectations for June 2002 renewals. The third figure is the pre-September 11 forecast for June 2002.

2001 Interim Insurance Results

(Source: 2002 Insurance Survey)