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Property and Casualty Insurance Trends |
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Recent world events have instilled a sense of fear in anyone who turns on
the television or opens a newspaper. People are more aware of their
vulnerabilities, and more interested in purchasing insurance. The irony is
that the same disasters, disease and acts of war have created a negative
trend in the property and casualty insurance industry, to the point where
these types of insurance are more expensive and more difficult for
consumers to obtain.
The property and casualty insurance industry
posted a $7.9 billion net loss in 2001. According to the Insurance
Services Office (ISO) and the National Association of Independent Insurers
(NAII), this is first time that the industry has ever reported a net loss.
Experts predicted a negative 2.7 percent return rate for property and
casualty insurance, almost 6.5 percent lower than the return rate of the
year 2000.
These losses have caused a number of property and
casualty insurance companies to cut back in an effort to economize. One
step taken to reduce losses was to avoid adding any new property and
casualty insurance policies. The insurers have also purposefully stopped
updating or renewing existing property and casualty insurance policies. As
a result, the premium price of property and casualty insurance policies
has increased.
A number of factors are said to have caused the
property and casualty insurance problem, including acts of terrorism,
natural disasters, economic turmoil and even mold.
The headline of
one trial lawyer publication, “Mold is Gold”, indicated that recent court
decisions against insurers had jeopardized profitability of the property
and casualty insurance industry. Invasive mold was recognized as the
latest household hazard, and property and casualty insurance policyholders
were cashing in with lucrative lawsuits. A well-publicized Texas lawsuit
resulted in a staggering $32.1 million decision – extremely profitable for
the owner, potentially devastating for the property and casualty insurance
industry.
The terrorist attacks of September 11 greatly contributed
to the negative impact on the property and casualty insurance industry. It
has been reported that property and casualty insurance claims related to
the events of September 11 totaled as much as $70 billion. The same event
has also caused the decline of the stock market, adding to the insurance
industry’s downward trend.
This negative impact has also had
a detrimental effect on the real estate industry, where property and
casualty insurance is essential. Property and casualty insurance coverage
is essential when applying for a conventional, government-assisted and
commercial mortgage; without it, lending companies will reject the
mortgage application. Therefore, the real estate market cannot function
properly if this type of insurance is more expensive or less accessible.
In real estate, mortgages are paramount in closing the vast majority of
sales. Without property and casualty insurance, there won’t be any
mortgages, and sales in the real estate market will plummet. Moreover,
without property and casualty insurance coverage, homeowners would find it
difficult or impossible to maintain their mortgage obligations. Lenders
would be forced to foreclose on the property, or subject the homeowners to
expensive lender forced-place coverage.
No one can contest the
devastating personal consequences of natural disasters, acts of terrorism
and disease. The insurance and real estate industries are two examples of
how these events have had a negative impact on our economy as well.
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