Insurance industry braces for higher rates

Insurance executive Keith Mercier isn't a worrywart, but because his business is all about preparation, he is on the precipice of some serious anxiety these days.

Mercier's concern is over how much property insurance carriers will raise rates in 2012. “With all the disasters that have gone on over the past few years,” Mercier tells Coffee Talk, “it stands to reason that rates will go up.”

A vice president with Bouchard Insurance in Sarasota, Mercier sent a note to clients about his overall projections of the market a few days after Hurricane Irene ripped through the Northeast. Mercier says the combination of tsunamis, earthquakes and tornadoes nationwide have led to the onset of a “hard property market.” A hard property market in insurance is when underwriting standards are tight and rates are high.

At least, says Mercier, the turn won't “be as bad as 2004 and 2005, when the property market got hard real quick” after several hurricanes pounded Florida and the Gulf Coast.

Mercier bases his 2012 projections on past experience in the industry and on scuttlebutt he has heard around town. Writes Mercier: “Several carriers, including regional Florida property writers, have begun warning us of increased rates, coupled with the non-renewal of accounts whose property values are driving up their reinsurance costs.”

Adds Mercier, in an interview: “When carriers start grumbling, you know something's coming.”

The big unknown is just how high carriers will raise rates. One advantage for business owners, paradoxically, could be the recession. That's because it could be hard for carriers to justify large rate hikes while clients' businesses are in such a struggle.