FM Global Group chief executive says major disaster would cut supply

A major loss could be good for the commercial property insurance market, according to one of its most senior members.

Shivan Subramaniam, group chief executive of FM Global, which claims to be the world's largest commercial property insurer, said a big loss could help insurers by cutting supply relative to demand.

He told Insurance Times: "In areas like natural disasters [a major loss] could be good for the market. That would make the supply side start to shrink and that would then take care of itself."

The current environment was one of few times when trends in property and casualty insurance were diverging, he said.

Directors' and officers' liability issues, asbestos claims and legal inflation all push casualty prices up, but he added: "On the property side, I suspect [the price rises] are all done, if we don't have another major terrorist event."

Subramaniam said if commercial property prices flattened out, insurers were still left with a sufficiently strong market to make money. But he suspected that competition would be focused on coverage and customer service rather than price.

"I've been more wrong than right," he said. "But I would suspect that with pricing starting to flatten out in the commercial property arena, the challenge and where they will start to compete is on catastrophe capacity and capacity to offer terrorism coverage."

Subramaniam said FM Global would lead the market by cutting the price of terrorism cover but would "stay the course" in the face of competition.

And it would use its focus on risk management to fight off competition from capacity-rich start-ups such as the Bermuda operators.

He said: "The Bermuda start-ups almost always have capacity and price but don't have the service aspect."

He said he would deploy engineers worldwide to develop risk expertise.