Reports published in spring 2024 suggest the property insurance market is showing notable signs of improvement. Commercial real estate owners and operators have been experiencing better market conditions than those observed in recent years. With the rising interest rates of 2023 settling, commercial property owners seem to be shifting their focus to growth and retention.
The aforementioned report, published by Gallagher, suggests most non-CAT exposed assets without significant loss experiences should see property renewal rate increases of straight 10%. Holders with poor loss performance may still experience increases of 15% or more.
Due to a lack of material hurricane activity in 2023, property markets were expected to remain focused on growth and client retention. However, the recent landfall of hurricanes Helene and Milton may prove to alter the state of the market significantly in the near future.
Tends Influencing Property Insurance Rates
Professionals across the sector have been conducting internal reviews of the property insurance market. This is done to gain a clearer understanding of market conditions and projected developments that may begin to impact insurance rates in the near future. Reviews such as the Marsh McLennan Agency’s 2024 Commercial Property Trends Report reveal emerging trends. These trend could impact both commercial and homeowners insurance policy in the coming months.
Unmodeled Perils Affecting Coverage Costs
Property portfolios have been impacted by a growth in secondary catastrophe perils such as sub-zero temperatures, hail, wind and flooring. Continuing supply chain issues, growing inflationary pressures and high-magnitude catastrophe losses equally influence the market.
These challenges may affect coverage and insurance costs, influencing insurers to adopt stricter risk management policies. Findings in the McLennan Agency’s report point to policyholders with sustained losses and significant exposures experiencing rate increases between 50%-100%. This poses a potential issue that organizations must account for moving into 2025.
Emerging Changes to Risk Selection Criteria
Investment and capital has seen notable growth in the last 12 months, reflecting a motivated market that displays signifiers of prolonged stability. However, for the market to remain in a stable state, carriers must adapt to going demands for comprehensive property coverage.
Conservative underwriting practices are expected to continue while carriers wait for a more predictable norm to be established. Experts warning changes to the frequency and severity of climate events and secondary perils may reverse recent positives. Such warnings have been realized to some extent in recent months. The impact of hurricane Milton is expected to cause insurance rates to rise to some degree during 2025 and perhaps beyond.
Increasing Severity of Climate Changes
As alluded to above, emerging escalations in the frequency and severity of extreme weather events could destabilize the insurance market in the near future. As a result walking back some of the improved market conditions that property owners and operators have experienced recently.
According to data published by Bloomberg, global insured losses from natural disasters have surpassed $100 billion four consecutive years. This has led some researchers to suggest ongoing climate patterns may further accentuate the adverse impacts of commercial property losses.
Inflation-Driven Property Premiums
Historic inflationary pressures have contributed to increased commercial property premiums and heightened claims expenses for some policyholders, though concerns have decreased as inflation has fallen in recent months. However, with wider expenses like building material costs and construction industry wags growing, market stability may not continue indefinitely.
If inflation continues for the remainder of 2024 and into 2025, some policy holders may begin to face underinsurance concerns, with outdated property valuations leading to a reduction in claim payouts and coinsurance penalties, possibly contributing to larger out-of-pocket costs.
Best Practices for Navigating the Current Insurance Market
Provided that property owner, managers, and insurance policyholders remain informed and aware of emerging trends, stakeholders could still benefit from improved market condition. However, the long-term impacts of recent hurricane activity may complicate things. To place policyholders in the best position to navigate future conditions, consider the below practices.
Voluntarily Increase Deductibles
Choosing to increase potential out-of-pocket expenses associated with insurance claims will lead to decreased premiums, aiding policyholders in making the most of the positive trends. However, any decision to voluntarily increase deductibles must be made in reference to risk management reviews, with holders accounting for novel location-specific market fluctuations.
Combine Existing Insurance Policies
Owners and operators of multiple properties may consider bundling standalone policies into a combined agreement to benefit from lower rates, insurer-side discounts and reductions in associated administrative costs. Streamlining policies in this way, supported by investments in lease management software, can help policyholders best prepare for future developments.
Reassess Coverage Requirements
Conducting annual reassessments of realistic coverage requirements can help policyholders get in front of changeable factors. Some of these factors include, fluctuating property values and insurance rates. Efforts to remove unnecessary coverage, as well as to increase coverage for emerging risks, before rates rise can assist property owners in improving preparedness for future market conditions.
Conclusion
Commercial real estate may see stable property insurance market condition in some areas for the remainder of 204. However, recent hurricane activity is likely to affect some stakeholders. Recently published reports penned by industry experts reveal emerging destabilizing forces may also impact condition in the near future. With this in mind, owners and operators of real estate portfolios should make the most of the current conditions. This can be done by adjusting policies to account for recent hurricane activity and potential risks projected to emerge in the future.
