Brokers said commercial property insurance policyholders, who have seen premium increases and coverage cuts since 2018, are likely to see more moderate premium increases in the first half of the year as insurance capacity expands and some stability returns.
Insurers will continue to push for higher rates, with higher increases expected in the low double digits or higher for more difficult properties such as disaster-risk properties, damaged accounts, food, public entities and apartment complexes.
Top-end properties with minimal losses will benefit from a more competitive market, allowing for low single-digit price increases and even flat renewals for some buyers, they said.
Martha Bain, managing director of North American real estate at Glendale, Calif.-based Arthur J. Gallagher & Co., said the property insurance market will depend in large part on the outcome of the Jan. 1 reinsurance treaty renewal.
“From what we're hearing, the picture is quite positive with price increases being minimal and there being capacity to meet demand from the major airlines,” Bain said.
Policyholders should expect the level of rate increases to slow in 2024 after the volatility in prices and terms seen in 2023, she said.
Rick Miller, U.S. real estate leader for Boston-based Aon PLC's commercial risk solutions business, said year-end renewals have been “surprisingly good” compared with past years and the market appears to be heading toward more stability.
“I wouldn't say the market is soft right now by any means, but our shared and tiered programs are starting to see oversubscription, which is good news,” Miller said, adding that most insurers are looking to grow.
Increased capacity
It's an increasingly competitive market, with more capacity being brought on board, said Michael Rouse, New York-based U.S. real estate practice leader for Marsh LLC.
“In all markets, we are seeing increased appetite to protect renewal contracts while at the same time augmenting existing contract lines at renewal,” he said.
Insurers that traditionally took a 10% line may have increased their share to 12.5% or 15% of risk, Rouse said. Even in the toughest end-of-year renewals, “there's no question that there was a better buying environment for customers,” he said.
More capacity may be available, but it will still come at a high cost, said Scott Litt, vice president of risk management for Kilroy Realty in Los Angeles and president of the Los Angeles chapter of the Risk & Insurance Management Association.
The company is budgeting for a 30% to 35% increase in its real estate program, which is due to be updated March 1. “That's a very conservative estimate. Hopefully it's less than that,” Litow said.
Kilroy increased its insured value last year and now has total insurance value of $7 billion to $8 billion, he said. When it came up for renewal last year, premiums rose 27 percent to 30 percent, a shock to some Kilroy executives, he said.
The program has an overall risk limit of $500 million and an earthquake limit of $250 million, Lito said. Kilroy did not lower the limits or increase the deductible last year, but is still evaluating whether to do so.
The company's number of prime insurers has grown to nine. “Customers are underwriting smaller and smaller lines of insurance for which they are paying pretty good premiums,” Litow said.
Catastrophe losses
The absence of any major wind catastrophes in the United States last year had a positive impact on the performance of insurers and reinsurers, but global insured property catastrophe losses are expected to exceed $100 billion in 2023, according to a January update from Gallagher Re.
Brokers said risks of high winds in Florida, earthquakes in California and wildfires remained severe.
Jeff Buys, vice president and national real estate practice leader for Fort Lauderdale, Fla.-based USI Insurance Services LLC, said the market remains divided.
Disaster-risk properties continue to see confusion, particularly Florida wildfire and coastal properties, Buys said.
While there is spare capacity, renewals are “going to be more painful” for existing insurers who are just beginning the process of cleaning up their books, he said.
USI expects premium rates for assets with or without catastrophe risk and low loss or risk quality to increase by 15% to 30% in the first half of 2023, down from increases of 25% to 150% in the second half of 2023.
Catastrophe-risk assets with minimal losses and good risk quality are expected to see rates increase by 15% to 30%, according to USI's 2024 Commercial Property and Casualty Insurance Outlook, due to be released today.
Exposure to severe convective storms is also a concern, with such losses expected to exceed $59 billion in the U.S. in 2023, according to Gallagher Reinsurance.
Buys said insurers were taking steps regarding the terms and conditions of affected accounts to limit their risk.
From a secondary peril perspective, Bain said severe convective storms are becoming the “loss leader.” “These losses are being absorbed by primary insurers as reinsurers increase their retention rates,” he said.
Miller said real estate development is on the rise in many parts of the country and various events are having a major impact on insurers, but the price adjustment reflects supply and demand.
“When demand exceeds supply it becomes a seller's market, and I'd say we're pretty close to an equilibrium point,” he said.