Commercial property insurance rates rising
Rates could go up as much as 15%, but the E&S market could see more capacity as it catches investors’ attention.
For the first half of 2021, commercial property insurance rates are anticipated to increase from the high single digits to 15%, according to Risk Placement Services (RPS), which noted every commercial buyer will feel an impact from the firming market whether through higher premiums, less capacity, stricter terms or a combination of the three.
Overall, 2021 is expected to bring hard market conditions across lines.
A portion of the property insurance rate gain can be attributed to carriers passing down higher reinsurance costs, according to RPS, which reported insurers saw rate gains of 10%-15% when renewing their treaties at the end of 2020. This was on top of mid-year rate increases of 25%-30%.
As 2021 unfolds, reinsurance will play a larger role in rates, capacity and terms “as carriers continue to improve their book composition and move toward the use of ‘technical pricing,’” Wes Robinson, RPS national property brokerage president, said in a release.
Capacity constraints could hit coastal regions
From the Western wildfires to increasing tornadoes in the Mid-South region and an exacerbating hurricane season, the losses from natural catastrophes are becoming astronomical. RPS reports Hurricane Laura’s damages are estimated between $11 billion-$15 billion.
Compounding the issue is the often higher cost of rebuilding following a natural catastrophe as demand drives up building-material prices. This coupled with the increasing use of technology in property construction is causing some claims to pierce excess coverage layers.
Excess carriers were caught off guard by this, according to RPS, as CAT models indicated excess layers shouldn’t have been hit. As a result, underwriters at these carriers are re-rating policies internally and pricing risks as much as 40% higher than model estimates.
Further, capacity is tightening and buyers in catastrophe-prone coastal regions and parts of the Midwest will especially feel the pressure, RPS reported. This will cause many to turn to multiple carriers for layered coverage as a way to get the excess limits they need.
A silver lining in the E&S market is that outside money is starting to see the sector’s profit-producing potential, which should result in more capacity coming from insurance-linked securities, RPS reported.
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