Commercial property insurance buyers can expect to determine more stable market conditions overall in 2022, however for catastrophe-prone and loss-hit accounts, capacity will continue to be difficult to secure and much more costly.
While year-end renewals were generally easier compared to 2022, the outcome of unexpected December wildfires in Colorado along with a significant tornado outbreak that hit multiple central and southern states has yet to experience out, experts say.
There are also concerns over loss creep from Hurricane Ida, which led to $36 billion in insured losses from Louisiana to Ny in late August and early September, based on the latest estimates from Munich Re.
Insurers are asking more questions regarding property valuations and then scrutinize time element exposures, brokers say.
It's a tale of two markets, said Gary Marchitello, chairman of Willis Towers Watson PLC's United states property practice in New York.
Average rate increases like the single digits as pricing moderation continues, but those risks with “perceived insufficient focus on risk control, with repeated losses, as well as in troubled occupancies deviate away from norm,” Mr. Marchitello said.
“We're still seeing between 10% to 25%, even 50% to 60%, increases on some risks,” he explained.
Tougher occupancy classes of property business include food industry accounts, frame habitational, heavy manufacturing, forest products and waste management, brokers say.
In accessory for occupancy, certain geographic areas are challenging, said Brian Dove, USI Insurance Services LLC's national property practice leader, based in Dallas.
“If you are in a wildfire area or perhaps a hurricane county, that's a big challenge. If you've got a poor loss history it is extremely challenging to get insurers to be thinking about your bank account,” Mr. Dove said.
For risks located in southern Louisiana that got hit by Hurricane Ida “all bets are off,” he explained. “Whatever capacity you're buying you are going to purchase, and you might not get all the capacity you want,” he said.
However, insurance buyers could make adjustments to their programs to control the end result, he explained. “Whether it be a retention strategy, limits strategy or risk mitigation, there are numerous things you can do,” he said.
Rates for property in non-catastrophic regions with higher loss history will vary from a 5% decrease to some 5% increase in the very first 1 / 2 of 2022, USI predicts. Catastrophe-exposed property with minimal loss history will see rate increases of between 5% and 10% or higher. Property having a poor loss history will see rates up 15% or even more.
Rick Miller, Boston-based U.S. property practice leader at Aon PLC's commercial risk solutions business, said that while there has been 18 straight quarters of increasing property rates across its portfolio, rate increases began to even out toward the back 1 / 2 of 2022.
For accounts that have been profitable, where underwriters feel minute rates are adequate, renewals are “fairly straightforward,” Mr. Miller said.
“Incumbent insurers are defending their better business and that means certain clients seeing flat renewals. Fundamental essentials accounts that performed fairly well,” Mr. Miller said.
Some accounts – the most desirable ones – are seeing decreases. Aon third quarter 2022 data showed 15% of its accounts at flat or having a rate decrease, he explained.
Some new capacity has come into the market via different vehicles for example managing general agent and wholesale business, said Michael Rouse, New York-based U.S. property leader at Marsh LLC.
“We've also seen some of the historical players turn to deploy a bit more capacity, maybe structure capacity diversely, that has benefited us. As insurers turn to grow profitability it has helped to mitigate a few of the rate increases on the market,” Mr. Rouse said.
For catastrophe-exposed accounts, alternative structures such as parametric coverages, are gaining momentum. There is a “greater uptick” of interest in parametric coverages within the last year, Mr. Rouse said.
Christie Weinstein, New York-based director, risk management at Honeywell International Inc., said there was “a lot more interest” from additional capacity in 2022. “Some capacity has moved out of the market, along with other insurers have taken on capacity. You'll notice that happening again in 2022,” she said.
That, in turn, may drive more competition on the market. “It may not have a substantial impact on rate increases, however it will definitely put more pressure on rate stabilization,” Ms. Weinstein said.
Taking large deductible plans and making greater utilization of captive insurers to retain risk are some of the strategies large manufacturing companies can deploy to offset fluctuating rates and take more risk internally, she said.
Insurers continue to take a disciplined method of policy conditions and terms, brokers say.
Communicable disease and cyber exclusions in property coverage is widespread and insurers are pushing higher deductibles across a broader geographic region for tornado and hail risks in the U.S.
Percent deductible levels for hail often equal the price of a full roof replacement, which provides limited or no coverage for any hail event, Mr. Dove said.
Property valuations are also being heavily scrutinized by insurers, out of the box contingent time element coverage, which attention is anticipated to continue. The price of materials to rebuild properties has grown throughout the pandemic, as has the cost of labor, which affects the price of losses and may result in loss creep, brokers say.
As insurers will probably convey more questions, buyers have to be ready to explain their values, Mr. Miller said. “We work with these to enable them to understand their values,” he said.
There is “intense scrutiny” on contingent time element exposures, more questions about supply chains, and “decidedly less limit available for contingent risks,” Mr. Marchitello said. Capacity has halved of these exposures, he explained.
Those risks that are perceived to have outsized exposures to suppliers, such as manufacturing and high-tech industries, are most affected, Mr. Marchitello said. Those companies that can provide a greater degree of detail and let you know that they manage their logistics and also have robust business continuity plans will be perceived as better risks, he explained.
Overall, the market remains fragile, and an event or uncertainty could move it in a more negative direction for buyers, Mr. Rouse said. “At the same time, if we see less frequency or severity from a loss standpoint it might improve for clients too. Time will inform how the market reacts in 2022,” he said.
