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May 14, 2019

Insurance Trends Playing Out in 2019

The improving economic conditions and favorable tax legislation have created a near-perfect business environment for real estate over the past five years. At the same time, environmental catastrophes such as flood, wildfire, severe storm, hurricane and earthquake have insurance companies rethinking how to deploy capital to manage aggregations in catastrophe (CAT) exposed areas.

Just as insurance experts examine how outside influences and trends affect the property and casualty marketplace, businesses should evaluate how these factors influence their insurance coverage.

New market developments to consider

Continued market surplus – Insurance carriers are still obtaining large amounts of excess capital, which has helped stabilize the market despite the growing number and severity of claims. Although this trend should continue in 2019, some experts worry that if large losses continue or other market conditions emerge, P&C carriers may not be able to rely on their reserved assets.

Delicate political climate – The Trump administration’s policies on trade, immigration, taxes and other issues have had a variety of effects on business. New trade deals have changed how organizations import materials and export products, and an extended government shutdown in the beginning of 2019 caused many federal agencies to pause their operations. This climate will likely remain in place for much of 2019, especially as public perception focuses primarily on affiliation with a political party.

Changing perceptions on liability and harassment – The #MeToo movement and other social campaigns have highlighted workplace harassment, and businesses are being held to a higher standard for topics related to their employees’ actions and employment procedures. Because of this, many businesses will have increased liability exposures – even if they haven’t changed their operations and don’t have loss histories.

Region-specific weather risks – Carriers under price pressure created by the recent prevalence of convective storms and the inflated cost of repair are closely examining how a property’s location and loss history affect the chances of future wind, flood and fire damage. Specifically, underwriters are looking at properties with multiple rain and flood claims, especially those along the Gulf and Atlantic coasts, as well as fire risk along the Pacific coast and other fire-prone areas.

Flood insurance updates – A short-term renewal (through May 2019) of the National Flood Insurance Program (NFIP) was issued just before the start of 2019, but most experts agree that it needs extensive changes to remain a viable option for businesses and homeowners. Many legislatures have suggested the program needs to allow for private insurance options, limit payments to properties that flood repeatedly, create incentives for risk mitigation or improve flood-mapping programs.

In general, flood insurance has not shown much change over the last six to 12 months with the exception of some lenders becoming more stringent on what they require. We’ve seen an uptick of “stubbornness” from lenders in mandating coverage be placed even if a property is not in a flood zone but is adjacent or near a flood zone. 

Some positive trends

Lower workers’ compensation rates – Many states announced lower workers’ compensation rates for 2019. Additionally, insurance carriers will continue to compete for business because of a decline in loss rates, lost-time claims and loss severity.

Opportunities for businesses with risk management plans – Businesses traditionally don’t want underwriters to look too carefully into their operations, but the increased level of scrutiny in 2019 may actually help companies lower their insurance rates if they address their unique risk exposures. Organizations that are proactive and disciplined in their risk management philosophy and approach will receive a more favorable view from insurance carriers. Having a strong safety culture and the ability to articulate an organized and developed claims trend and strategy are critical points to highlight in market submissions.

Rising number of coverage options – Insurance carriers may limit a policy’s terms if it relates to substantial property or liability risks, but other marketplaces should offer more flexible coverage options. This is especially the case for cyber insurance, as carriers are starting to include coverage in other types of policies and as a standalone package. Real estate professional liability insurance is available in response to an increase in claims for mismanaged transactions and developments. In response to the rise in active shooter and workplace violence events, an emerging insurance market offers coverages intended to mitigate the impact of lawsuits and claims of inadequate security.

Sector-specific trends

Multifamily properties – This sector continues to experience the most significant insurance capacity challenges. In addition to the natural catastrophe losses in 2017 and 2018, multifamily portfolios are producing fire and water damage losses, causing some carriers to exit this risk class. On the casualty side, liability claims involving tenant discrimination, wrongful eviction and sexual harassment have been on the rise, as have assault and battery claims.   

Habitational real estate owners should focus on protecting their loss run by transferring risk to renters. Requiring all renters to have renters insurance and tenant liability insurance are the types of risk controls and risk management strategies that will positively impact placement of coverage associated with these exposures.

With overall capacity shrinking, even with improved risk management, insureds with exposures to natural catastrophes and below-average loss history can expect significant rate and deductible increases and/or changes in terms and conditions. Rate increases from 15 to 25% can be expected, even for best-in-class accounts. Properties in high-wind/hail areas (TX, OK, CO, and to a lesser degree KS, MO, NE, IA and AR) with claims issues may see rate increases in excess of 30% and has high as 40%.

Office and retail – Here, too, loss history and CAT exposure will be key variables, but everyone will see some increase. With reinsurance rates pushing higher and decreasing coverage capacity, especially in disaster-potential zones, even Class A “clean” accounts can expect 5 to 15% rate increases. Accounts with a history of losses may experience rate increases as high as 20 to 40%.

Bottom line

From the rise of opportunity zones to a trend by e-commerce to open brick-and-mortar stores and continued investor interest in multifamily, industrial and retail assets, real estate transactions remain at high levels with little slow-down in sight. Reviewing your risk mitigation profile on a property-by-property basis within the framework of 2019’s industry and carrier trends is a prudent and potentially dollar-saving approach.

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Your Team

Successful real estate enterprises manage more than properties and investments to achieve market value; they manage risk and they manage people at all organizational levels. CBIZ Insurance Services, Inc. helps owners, investors and developers minimize risk and capitalize on opportunities by addressing construction, financing, tenants, physical property and special risks. To discuss your risk profile and insurance options, feel free to reach out to Jim Judd (816-945-5630) or contact your local CBIZ Insurance advisor.


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