In a speech to Australian risk managers, Lloyd’s of London chair Sax Riley says businesses will have to change their approach to insurance in the post-September 11 market. Specifically, corporate clients will need to reassess their insurance buying in light of hardening prices and the potential for coverage to be less available. “Businesses need to conduct a full analysis of risks that could have a material impact on their balance sheets and obtain cover for those first. Then any additional cover can be purchased later if capacity permits and if prices make it economic,” says Riley. He says that not only will rates increase as a result of reinsurance costs following September 11, but the amount of reinsurance will diminish, and certain covers may be excluded. At the same time, insurers are dealing with increased risk profiles for many countries, including the U.S. “Major recent losses will easily soak up much of the excess capital in world insurance and reinsurance markets. There is still capacity in the market, but it is at a reduced level, so our advice to clients is to talk to brokers and insurers sooner rather than later. The day of the automatic renewal of policies is gone; September 11 has changed that. Now renewals will need to be negotiated in a way we haven’t seen for a decade,” Riley comments. These comments echo findings in a survey by the Council of Insurance Agents and Brokers in the U.S. which finds that not only is hardening accelerated in the commercial markets since September 11, but terms have also become very tight, with some covers not available at all. Some members are reporting commercial policy rate hikes of 100-200% over last year, when rates had already begun to harden. Overall, a 10-30% rate increase is being reported, while in some lines such as business interruption, habitational property and umbrella coverage, the number is significantly higher. “As significant as price increases are to commercial customers, the market has been hardening for quite some time. But, the real story emerging since September 11, is the emergence of stringent underwriting,” says Ken Crerar, council president. He says that insurers are looking at exposures on a risk-by-risk basis and some covers are completely unavailable. They survey also suggests that brokers are looking to alternative risk transfer options for their corporate clients. About 44% say they will increase the use of these alternatives, including excess and specialty markets.