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24 Maritime Reporter & Engineering News ? APRIL 2013 LEGAL BEAT One of the worst years ever for the insurance industry was 2011. According to the Insurance Information Institute in New York, in 2011 catastrophes worldwide caused an estimated $350 billion in economic losses, shattering the previous record of $230 billion set in 2005, the year of Hurricanes Katrina, Wilma and Rita. insurance rates are now rising. Like marine, property or casualty under- writers, reinsurance underwriters also take a closer look or restrict what risks they will reinsure. In part, a rise in reinsurance rates is often a precursor to insurance rate increases and stricter underwriting discipline. So, losses occur. Investment re- sults are low. And insurers? reinsur- ance rates creep up. These are the first signs that the insurance market might be heading the other way into a so called ?hardening? market. Under these conditions, insurers reevaluate the risks they underwrite, the rates they will charge and the coverages they will provide. They look to tight- ened insurance coverage terms and conditions, including available capac-ity. As marine insurance is considered to be the oldest form of insurance, the market has seen and survived its share of market cycles. While most early marine insurance came from Lloyd?s of London, a few American marine insurers formed during the War of 1812. When the fighting ended, price wars broke out between American and British insur- ers. By the Civil War, many American marine insurers were out of business but those who survived were stronger and some are still in business today. Surviving Cycles The history of marine insurance is filled with stories of companies who survived and others who didn?t. And in today?s dynamic business environ- ment, the challenges are greater than ever. Survival in today?s insurance market depends on many factors but disciplined underwriting and invest-ing are paramount. Those companies who are disciplined and have the best talent and expertise in the lines of business in which they choose to be active participants will persevere and thrive. While market condi- tions impact transactional business, many buyers know that the best deal is not always the cheapest one. Hav-ing established broker and insurance carrier relationships often outweighs excessive premium savings. Work- ing relationships become particularly important as market conditions begin to turn and buyers, especially those businesses with complex risks such as the marine industry, may have more difficulty buying insurance with the terms and conditions they want. Long term relationships and work-ing with experienced underwriters and brokers might not always be the least expensive approach to the pur- chase of insurance but working with insurance professionals who have the knowledge and understanding of an insured?s business and can provide additional services in the form of risk control and professional claims ex-pertise will more often than not get a buyer of insurance the ?best? deal. More disciplined underwriting re-quires insurers will be asking more questions to understand the risk they will be taking on when issuing or re-newing a policy. Therefore, in this business climate, insurance buyers are wise to prepare ahead when renewing their insurance. Companies need to plan in advance and get the renewal specifications together early. Insur- ers are examining their risk retentions and rates as they review renewals and some companies may be willing to ac-cept more risk retention, or in other words, higher deductibles, to get bet-ter overall rates. And, in a weakened economy, underwriters will look care- fully to see how a business? exposures might be changing as a result of the economy. At times, it is a test of will- power. In a ?hard? market, insurers do not want business at any cost, but at the right cost. And, adhering to strict disciplined underwriting is a matter of survival to service their customers now and years from now. Buying insurance is an important financial decision for any company. And in most cases, businesses want their insurance companies to be with them for the long haul. Insurance com-panies sell their promise to serve and offer financial support to their clients in the event of a loss. It?s an agree- ment to pay a claim. In order to do that, they need quality underwriting results that produce a profit to con-tribute to the financial strength that allows an insurance carrier to remain true to its claims-paying promise.MR #4 (18-25).indd 24MR #4 (18-25).indd 244/4/2013 1:35:01 PM4/4/2013 1:35:01 PM
