Market changes and challenges for commercial property risks
The industry will see continued changes in the market as carriers look to bring their property books back to a more profitable level.
This year has commercial property carriers experiencing a multitude of industry challenges. As a result, the industry will see continued changes in the market as carriers look to bring their property books back to a more profitable level.
From increasing rates and deductibles to fewer classes of business and stricter underwriting, the following are key industry challenges facing commercial property risks.
Accelerating rate increases
In the fourth quarter of 2019, insurers should expect rate increases across the board of 20%, 50%, 100% or higher, according to Willis Towers Watson. Even accounts with low catastrophic exposure and favorable loss history are beginning to experience double-digit rate increases.
Carrier capacity reductions
Risk selections will continue to tighten as carriers become more discriminating in the risks they are willing to accept or renew. This has created challenges for commercial properties to meet more stringent conditions, as quality risks remain the focus of carrier capacity offerings. Carriers are in many cases reducing their overall line capacity offerings on accounts, even on renewals. This reduces the economy of scale for larger line sizes and is increasing the frictional cost to purchase the same amount of coverage limits from last year.
Increased deductibles
Property carriers have increased percentage deductibles generally on nearly all accounts over the past several renewal cycles in high-wind zones or with critical catastrophe exposures. Accounts with dollar caps may also experience moderate to substantial increases in deductibles and could very well see the removal of the dollar cap entirely. These changes have made it critical for brokers to review the impact of various deductible options to determine the cost-benefit of alternative deductible structures.
Fewer policy options
Expect to see more commercial property carriers tightening coverage options and policy enhancements, especially for critical catastrophic risk exposed accounts. For those that continue to offer coverage enhancements, an additional premium may be assessed or factored into an increased premium.
Insurance-to-value changes
Weather-related catastrophes and other industry losses have applied pressure regarding previously acceptable ITV level inadequacy born by the replacement value amounts paid in claims. Carriers have increased the scrutiny of ITV formulas and will recalculate and/or raise requirements — depending on the type of building construction.
Habitational real estate and multifamily properties challenges
Over the last year, the habitational market has witnessed market contraction. London syndicates have pulled back from the space, or in some cases closed down. Previous primary U.S. markets have ceased writing primary habitational business and moved to excess only, or in some cases stopped writing in any layer position. Remaining carriers are moving towards what they view to be rate and deductible adequacy for the class, resulting in renewal increases from 20% to 50% (and sometimes higher).
Solutions
Given these and other market changes and challenges, the experts at Worldwide Facilities recommend that commercial property brokers begin the renewal process early and explore multiple market strategies. Innovative and creative renewal strategies are key, and insureds must be kept informed of the challenging market we currently face.
Shane Holden is a senior vice president and property broker with Worldwide Facilities. He can be reached at sholden@wwfi.com or 678-533-4044.
This piece first appeared on Worldwide Facilities’ blog and is republished here with consent.
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