Colemont - Phoenix :: OCIP Information

Earthquake Market Update

Capacity Loosening Up Slightly:

While the market remains extremely tight, there are signs that we may have hit bottom and conditions are improving. A number of key markets have increased their maximum capacity, and others have opened up Zones that were previously shut down. Many companies have their portfolios in order after slashing capacity, increasing deductibles, raising attachment points, and increasing pricing. It appears that 1/01 catastrophe treaty renewals have made carriers more comfortable with their cat portfolios. Carriers are now more willing to put up capacity, but still at a high price. Hopefully 2007 will be less painful for earthquake insurance buyers than was 2006.

There hasn’t been any movement yet on deductibles, it is still rare to find anything less than a 10% deductible in Zones A, B or E.

Downloads:

Click here for earthquake zone map.

New Capacity:

The newest entry to the EQ market is Rockhill Insurance Company. They have $2.5mil in primary and $5mil in excess capacity. The have appointed a limited number of wholesalers, Colemont being one of them. They are being relatively conservative out of the gate, their underwriting guidelines are very tight. Nonetheless, it is good to have additional capacity in the market. Their minimum premium is $25,000.

EQ Terms Spotlight:

Each market update will include an article on terms or conditions unique to the DIC world. The first spotlight is on deductibles. In earthquake, percentage deductibles are the only option available. The predominant method is the percent per unit deductible. Buildings, Contents, and BI are considered separate units of insurance, and the deductible applies separately to each unit. To clarify, suppose you had an insured with the following risk:

Building $2,000,000
Contents $1,000,000
BI $500,000

The deductible is 10% per unit/$50,000 minimum per occurrence. An earthquake causes $400,000 in building damage, $250,000 in contents damage, and a BI loss of $200,000. The deductibles would apply as follows:

Building:

$2,000,000 x 10% = $200,000 deductible
$400,000 loss - $200,000 deductible = $200,000 paid

Contents:

$1,000,000 x 10% = $100,000 deductible
$250,000 loss- $100,000 deductible = $150,000 paid

BI:

$200,000 loss x 10% = $20,000 deductible
$200,000 loss- $20,000 deductible = $180,000 paid

In this example the insured pays $320,000 in deductible amount and recovers $530,000 in claim amount from the carrier.