According to the Gallagher report, commercial property is expected to see an improvement in property insurance conditions in 2024, while the general insurance market is struggling with rising claims costs due to litigation abuse.
Commercial property owners and operators are experiencing improving property insurance market conditions in early 2024, but the property/casualty insurance market remains tougher for buyers, according to a recent report from Gallagher.
The report, which explored trends brokers are seeing in the commercial real estate and hospitality markets, predicts that property renewal rates will remain flat to rise by 10% for most non-CAT risk assets that have not experienced significant losses, but could continue to rise by more than 15% for policyholders with CAT risk and poor loss history.
“Following the lack of significant hurricane activity in 2023, 2024 has begun with an improving property market. At recent conferences in London and across the country, a common theme was the desire of the property market to grow and retain customers. This has translated into slower price growth rates compared to the previous year,” the report said.
The pace of insurer-mandated property valuation increases has slowed compared to previous cycles. Insureds whose valuations are deemed adequate in the eyes of insurers can expect value increases at renewal to be in line with the U.S. headline inflation rate, currently 3.2%. But insureds who fall behind could face mandated increases of 10% to 20% to make up the gap, the report said.
There have also been changes to commercial property insurance deductibles, with flood damage deductibles for mid- to high-rise buildings now exceeding $100,000.
“Insurance companies are pushing for coverage above $250,000, forcing policyholders to retain frequency losses from flood damage and reserving coverage for severe problems,” the report said.
All other perils (AOP) deductibles are also rising, with a $10,000 deductible becoming a common starting point.
Commercial real estate capacity is evolving, with limited new entrants, favoring smaller portfolios with single-location total insured values (TIVs) up to $20 million. Larger risks requiring shared and tiered placements will benefit from a resurgence in capacity in the London market, with modest increases and possibly declines. However, for risks with significant CAT exposure to perils such as earthquakes and named storms, securing large volumes of capacity remains a challenge, Gallagher reports.
According to the report, while the commercial real estate market is showing signs of improvement, the general insurance market continues to face challenges due to rising claims costs from third-party litigation financing (TPLF).
“Absent meaningful changes to tort reform and jury disclosure related to the TPLF, we expect claims costs to continue to inflate and rates to rise,” Gallagher said. “The TPLF represents one of the greatest threats to the sustainability of the P&C insurance underwriting ecosystem.”
The report said one unnamed European reinsurer has added more than $2 billion to its reserves to prepare for U.S. property and casualty claims in 2023 alone.
According to Susan Patelson, national property and casualty insurance leader for Gallagher’s real estate and hospitality division, average premium rate increases for major general liability policies are between 3% and 9%.
According to the report, insureds are struggling most with higher-cost liability policies requiring primary and comprehensive coverage of $25 million, as insurers are seeking the highest rates in this tier due to exposure to nuclear verdicts of over $10 million, which have been accelerated by the TPLF.
According to the report, non-life insurers are also reducing the capacity they can offer, increasing the number of insurers needed to fill large liability slots and increasing frictional costs due to minimum premiums.
According to the report, organizations that can demonstrate risk mitigation through on-premise property management and strong contractual risk transfer will be viewed favorably by underwriters.
See the full report on Gallagher's website.
