Weathering the Storms

Mother Nature wreaked havoc on the insurance industry in 2005. With 27 named storms, 15 of them hurricanes, last year’s storm season was the busiest—and costliest—on record. According to the Insurance Information Institute, a New York– based organization that aims to improve public understanding of insurance, total insured catastrophe losses were $57.7 billion—with $38.1 billion from Hurricane Katrina alone. And there might be more losses that haven’t yet been reported.

Those losses have meant higher commercial property rates for businesses, especially those in the southern coastal states. According to the Risk and Insurance Management Society’s Benchmark Survey, which captures data on the state of the insurance marketplace, commercial insurance buyers in that region saw property premiums increase by as much as 33 percent, with a median increase of 8 percent, in the fourth quarter of 2005.

For Minnesota businesses, insurance rates have remained stable—at least for now. Lower susceptibility to natural catastrophes in the upper Midwest, coupled with competition among regional carriers, translates into lower commercial property insurance for companies based here. Rate increases have been minimal, and, in some cases, have been flat or decreasing.

“If you go to areas where there’s catastrophic exposure, those rates are going up on property,” says Jeff Bowers, senior vice president at Chicago-based Acordia Insurance, a subsidiary of Wells Fargo. “But in the Midwest, where there isn’t that phenomenon, we’re still really competitive.”

Mariann Stocke, senior vice president at the Minneapolis office of Marsh Inc., a risk and insurance services firm based in New York, agrees. “For clients who have operations that are exclusively located in the Midwest, we’re seeing relatively flat renewals, maybe some decreases, maybe some really slight increases,” she says. “For clients that don’t have a lot of catastrophic exposure, such as earthquake, wind, or floods, it’s a good market for them.”

Lisa Dongoske, senior vice president for United Properties, has seen her clients’ insurance premiums rise and then fall in the last few years. United Properties manages 20 million square feet of commercial property in the upper Midwest and is the largest property manager in Minnesota.

“Property insurance rates doubled in 2002 and 2003 after 9/11,” Dongoske says. “Then they came down a little in 2004, but not really to pre-9/11 levels. Several hurricanes in 2004 pushed the rates up going into 2005. Then they kind of eased a little bit, and now we’re seeing a little bit of an increase. However, really for the upper Midwest, the insurance market is softening.”