Weathering the Storms

The next important reinsurance treaty date is July 1, when insurance and reinsurance companies renegotiate their contracts. According to the Insurance Information Institute, the increase in U.S. natural disaster losses and the increased likelihood of more active hurricane seasons in the future likely will raise catastrophic reinsurance costs for primary insurers. Primary insurers, in turn, could significantly raise their commercial and personal property insurance rates for hurricane-prone areas. The rates also could rise in other parts of the country, although less dramatically.

“We don’t know for sure what’s going to happen,” Bowers says. “We’ve heard all kinds of rumors that reinsurance rates are going to jump 25 to 40 percent. We’ve heard that since January 1, and we think there probably is some merit to it. We probably will see some increases in some spots, but I don’t think it’s going to be across the board.”

More frequent and more damaging natural disasters could eventually mean higher premiums for Minnesota companies. And researchers at the Tropical Meteorology Project at Colorado State University in Fort Collins predict an 81 percent probability of a major hurricane (category 3, 4, or 5) hitting the U.S. coastline in 2006.

“If there are years of this, then I think we’ll see a significant impact for everyone,” Bowers says. “If reinsurance capacity shrinks or goes away, then the reinsurers who are still left will start raising their rates. If the carriers can’t afford to buy reinsurance, and they have to take more insurance on themselves, then they’re going to start raising their rates.”

Managing Increases

Should insurance premiums begin to rise, companies can mitigate costs in many ways. For example, United Properties has helped cut its landlords’ insurance rates and costs by establishing a group-purchasing program with Acordia. United Properties owns 25 percent of the properties it manages, while individuals and businesses own the other 75 percent. United Properties offers its property owners the opportunity to pool with other clients to gain competitive and often significantly lower rates.

Another way for business owners to keep increased premiums at bay is by demonstrating to their insurers that they are lowering risk. “You want to do the best job you can at selling your risk, which would be clarifying for the insurers that you’ve got all the protection in place,” Stocke says. “You’ve got the necessary security. Your building sprinkler meets the load requirement for the manufacturing you’re doing. You want to differentiate yourself the best that you can to show that your risk is as good as it can be and maybe better than your peers.”