Steel sector sees higher insurance rates, deductibles

The current boom in steel demand has triggered steep rises in insurance rates and deductibles in this sector, according to a recent report by Benfield.”The dynamics underpinning this move could also prompt similar action on the mining sector,” the report adds.Benfield’s FAC report notes that as the steel sector strives to maximize output, it is devoting less time to equipment maintenance and loss prevention. The result is an increase in insured losses, driving up insurance rates and deductibles in this sector.”As well as major increases in deductibles, loss free steel accounts are now seeing rate increases of up to 50% at renewal while those with poor experience are facing rises in the range of 50% to 100%,” Benfield notes.According to the report, the rises in the steel sector have been triggered by a recent series of high-profile losses, including incidents involving steel majors Companhia Siderurgica Nacional (CSN), ThyssenKrupp and Mittal Steel. “Insured physical damage and [business interruption] losses from the five largest steel events in 2006 are now estimated at some US$800 million,” the report says.The strength of the market correction, reflected in the higher rates, is in large part a function of recent attritional loss levels, Benfield adds. “Loss ratios outside of high-severity events are estimated to have been running at about 150% over the past three years, and attritional losses to date in 2006 are thought to total some US$150 million,” the report says. “Accordingly, underwriters are seeking to reintroduce sufficient ‘financial pain’ to customer retention calculations both to limit their exposures and to prompt increased focus on risk management imperatives”.A similar sort of phenomenon may soon begin to happen in the mining industry as well, Benfield predicts.”Although conditions in the mining sector internationally remain stable, the similarity in dynamics between the two sectors including high commodity prices, output at maximum capacity and low deductibles means some underwriters are now predicting mining accounts could start to feel similar pressures,” the report says.