Commercial property premiums increased an average of 9.3% in the first quarter of 2020.[i] . This has been a market trend for the past few years. In fact, commercial property rates have increased every quarter since Q3 2017. These price increases are expected to accelerate throughout the year. This is especially true given that COVID-19 had yet to impact premium pricing in the first quarter.
Why is this happening? An increasing number of weather-related catastrophes and natural disasters (e.g., wildfires, hurricanes, windstorms, tornadoes, hail, floods, etc.) have put stress on insurance companies to cover their losses, driving up premiums. Plus, tropical storm activity in the Atlantic has been above normal for the past four years, with 2020 forecasts indicating that trend will continue. Insurance carriers are monitoring exposure to weather-related catastrophes and natural disasters closely.
Additionally, attritional property losses – losses other than those related to major catastrophes or exposures – are on the rise and are a cause for concern for many insurance carriers.
In response, insurance carriers are reducing their capacity and refining their appetite for certain risks. In some cases, insurers are exiting markets for certain industries. This is especially true for particularly high-risk operations with poor risk control practices or those located in natural disaster-prone areas.
Trends to Watch
- Unfavorable Renewals – In many cases, premium increases will be unavoidable. However, these increases will vary based on a number of factors, including, but not limited to, a business’ location, industry, loss history, CAT exposures and risk control measures.
- Carrier Selectivity & Stricter Underwriting – Carriers are focusing on their underwriting profitability more so than in years past and are facing less pressure to bring in new business. This allows carriers to be more selective about the risks they are willing to write. Underwriting criteria are expected to tighten, and loss control techniques will be scrutinized more than ever before.
- Increased Submission Volume – For 2020, we anticipate that insurers will see an increase in commercial property applications. This increase in submission volume will likely allow carriers to apply greater scrutiny to new applicants and be more selective when renewing risks.
Tips for Insurance Buyers
- Work with your insurance broker to begin the renewal process early in order to put your best foot forward.
- Examine the design of your property insurance with your broker.
- Gather as much data as possible regarding your exposures and existing risk management techniques. Be sure to work with your broker to highlight any business continuity plans and risk control measures you have in place.
- Address any open insurance carrier recommendations prior to renewals. Insurers will be looking at your loss control initiatives closely. Taking the appropriate steps to reduce your risks whenever possible can make you more attractive to underwriters.
For more creative tips to manage today’s market trends, contact a member of our team.
[i] Council for Insurance Agents and Brokers (CIAB) Commercial Property/Casualty Market Report Q1 2020