Rates Cuts for Financial Institutions to Moderate in 2012
A new report from Marsh anticipates deteriorating market conditions for financial institutions in 2012.
Rate decreases in many lines of insurance purchased by financial institutions moderated in 2011, Marsh reported in Navigating the Risk and Insurance Landscape: U.S. Insurance Market Report 2012. Financial institutions should expect this trend to continue in 2012 for most major lines of business, including financial and professional, property, and casualty.
Rates for U.S. financial institution clients of Marsh renewing their insurance programs in the fourth quarter of 2011 saw the following trends:
- directors and officers (D&O) liability rates were generally down 7 percent;
- errors and omissions (E&O) insurance rates were generally down 2 percent;
- property insurance rates were generally down 7 percent;
- general liability rates were generally flat to down 5 percent;
- workers' compensation rates were generally flat to down 3 percent; and
- umbrella / excess liability rates were generally flat to up 10 percent.
Jill Sulkes, Marsh's U.S. Financial Institutions practice leader, said that rate reductions are still possible, especially for financial and professional liability, but that those decreases will likely become smaller and that there are signs of a transitioning market for many lines.
"Insureds should be prepared for a more challenging marketplace in 2012 as underwriters more carefully evaluate their risks. Those financial institutions that can distinguish their risk profiles from their peers should be best positioned to secure more favorable terms, conditions, and pricing when renewing commercial insurance policies," Sulkes said.
Other risk trends affecting financial institutions in Marsh's report, include:
- After accounting for more securities class action filings than any other industry in each year from 2007 to 2010, the financial sector dropped to second place in 2011—behind the electronic technology and technology services sector.
- Financial institutions are analyzing the extent to which insurance provides coverage against claims arising from increasing regulation of the industry and the extent to which it can serve as capital mitigation.
- Insurers continue to scrutinize the deployment of their capacity to write workers' compensation for financial institutions with sizable employee concentrations of 1,000 or more, particularly in New York City.
- The pace of bank failures slowed in 2011, but more than 850 institutions are on the Federal Deposit Insurance Corp. problem bank list, indicating that closures and/or mergers and acquisitions may continue in 2012.
- Financial institutions are challenged to find adequate limits for flood and earthquake coverage within their mortgage impairment insurance (MI) programs, which protect the interests of financial institutions on property owned by borrowers.
Marsh's annual U.S. Insurance Market Report, provides detailed information on commercial insurance market trends and conditions.
