Some high-risk commercial properties facing triple-digit rate increases

Commercial property rates for high-risk accounts have seen insurance rates increase 25%-150%, according to analysis from Alera Group, which noted some experts are projecting current market conditions to persist through mid-year renewals, while S&P Global Ratings suggested the hard market will continue throughout 2023.

According to the company, high-risk accounts include those in catastrophe-prone areas, buildings with frame constructions and those with poor loss histories. In addition to California and states in the Southeast, CAT-prone areas are expanding to encompass more states in the West and East Coast.

“In the old days, California was considered the wildfire territory. That is beginning to move further east and north,” says Mark Englert, Alera Group’s executive vice president and property & casualty practice leader. He tells PropertyCasualty360.com that this spread is impacting Oregon and northern Nevada as well as parts of Texas.

“Before the storms we’ve seen recently, the property issues in California, Pacific Northwest and northern Nevada were wildfire driven,” he says, adding that Texas faces coastal issues like Florida, but also drought issues which created fire risks in the northeastern part of the state.

“The coast creates challenges as well. We talk a lot about Florida, but if you’re on the coast of New Jersey, if you’re on eastern Long Island, if you’re in the Carolinas, if you are on the water there are going to be challenges there as well,” Englert says.

Outside of those CAT-prone areas, rate growth has been more moderate, he says, with average increases in the 5%-15% range and in some cases as high as 25%.

He says accounts seeing more moderate growth are doing so on a case-by-case basis, explaining: “It is really the central part of the country where we are seeing more moderation, assuming there were no claims. If you’re in a situation where there have been losses, you’re going to be on the higher end of the spectrum. You have to noncoastal and outside of areas where there have been storms or active claims.

Understated property values

Alera Group also reports that insurance carriers are finding that a majority of property values are significantly understated, and are stressing the need for 100% replacement cost valuation as a result. Most carriers are requiring at least a 7.5% increase in values, while some large property accounts are seeing accurate reporting of values as a contingency for coverage.

Underwriters in this market want to ensure that individual clients are carrying proper values because they want to rate and collect premium based on the value of the building,” Englert says, explaining that without proper coverage the policyholder could effectively become a co-insurer on a loss.

“The reality is 90% of all property claims are a partial loss. Within that context, you would not become a co-insurer on a partial loss. But then the insurance company is looking at it and saying ‘if you haven’t provided adequate value, or you’re not insuring to value, I’m potentially not collecting enough premium.’ Underwriters really want to see clients who have done their homework and are covering to proper insurance value limits.”

Related:

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• Defining an occurrence in insurance
• 2023 P&C Outlook: Assessing the impact of higher rates & greater underwriter scrutiny