For months now I’ve been fielding calls from anxious board members, building owners and property managers alike asking for my prediction on Earthquake insurance pricing for 2011. Commercial owners and associations want assurance that their earthquake insurance renewal will not go up next year. Similarly, some condominium associations and landlords that have been without quake coverage due to cost concerns are eager to hear that they can buy a policy at an affordable price this year.
Commercial Earthquake Insurance Rates Will Make Bargain Hunters Happy (Jan to June 2011)
The carrier reinsurance treaties have been agreed upon and most companies have signed treaties with lower rates than last year and increased capacity. As a result, it looks like the market is continuing to get softer. [Reinsurance is insurance that is purchased by an insurance company (insurer) from another insurance company (reinsurer) as a means of risk management, to transfer risk from the insurer to the reinsurer. The term “softer” means that the pricing pattern is pushed downward to the advantage of buyers rather than the insurance companies.] The main reason for this downward trend is that there were not any significant catastrophic insurance losses (i.e. hurricanes, floods, earthquakes) last year.
What kind of savings can you expect?
Insurance carrier capacity is up and their costs are down. That means we will be looking at lower earthquake insurance rates and underwriters willing to write more difficult risks than they were last year. If your building is in an area where capacity has been scarce in the past you will now find that it will be easier to get your building covered. It also means that if you were in an area where capacity has not been a problem, most areas outside of Los Angeles and San Francisco Bay Area, rates are dropping.
Insureds will also find that lower deductibles will also be offered by the carriers so that you will not be forced to accept a 10 or 15% deductible. If you are willing to pay an additional premium you will be able to get an earthquake insurance policy with a low 5 or 10% deductible. The reappearance of the 5% deductible is a particularly nice thing for condo associations. This will allow some HOAs to purchase coverage without having to worry about unit owners purchasing earthquake loss assessment coverage because the deductible will have dropped from $30-50,000 per unit to $10-15,000. These lower deductible amounts make it much easier for owners to meet a special assessment without having purchased CEA loss assessment coverage. Landlords too will be happy to lower their out of pocket exposure in case of a significant seismic event.
Unfortunately, not every landlord and HOA will be dancing in the streets this year over earthquake insurance rates.
Buildings that were previously insured under cheap earthquake coverage through an old State Farm earthquake policy are in jeopardy of losing their bargain earthquake endorsements. State Farm has finally wised up to the fact that they cannot possibly pay out on all claims if a big quake were to happen. Not surprisingly, State Farm is cancelling earthquake coverage on hundreds of commercial buildings throughout California to help cut minimize their risk. If your property is one of these unlucky few, then you need to prepare to pay more your earthquake coverage. The reason is that State Farm’s earthquake insurance rates were disproportionately low and significantly beneath open market rates for many, many years. Therefore, you may be in for a bit of a shock as you adjust to paying the real market cost for your earthquake insurance.
As specialist in Earthquake insurance we have access to all of the markets that are available for earthquake insurance, and we shop them all to negotiate the best possible price for your earthquake insurance. Just give us a call (310) 945-3000 or email us devries@elliotkinsurance.com and we will be happy to see how our creative strategies can assist you.
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