A new study from NAPCO LLC, a wholesale broker of commercial property insurance coverage, suggests that the national catastrophe property market is quickly moving away from the soft market conditions that have governed insurance prices for several years. While this is typically good news for some insurers, the study shows that a low demand for insurance coverage may restrict the pricing power of insurers. David Pagoumian, CEO of NAPCO, says that property insurers are under heavy pressure to make profits in the current climate and may face even greater pressures in the future.
The report, State of the Market, outlines a number of trends that have been affecting the catastrophe property market. The study notes that risk models, especially those provided by RMS, a risk modeling agency, had a major impact on how insurers price insurance. Because of the frequency of natural disasters visiting the U.S. in 2010 and 2011, these prices have swelled, as have the premiums associated with catastrophe policies. With higher prices comes consumer fatigue – their general unwillingness to pay more money than they think they should for such coverage.
The report also notes that prices should have risen much more steeply than they have been. The reason for the slower rate of inflation may be due to the industry’s excessive capacity, which has allowed most insurers to weather the recent natural disasters that have struck the U.S.