Today’s commercial property market is one of the most challenging we have ever faced. Pricing is the highest we have seen in over 30 years, with no signs of slowing.
Relentless severe weather events are driving treaty and facultative reinsurance rates higher and causing reinsurers to reduce their aggregate exposures to catastrophic risks. This puts pressure on primary insurers to increase rates and reduce the risks they write. Hard market conditions will extend into next year.
In 2023, rate increases ranged from 10% to 15% for businesses with:
- Favorable loss experience
- Adequate property and business interruption (BI) values
- A good risk profile
- Little to no catastrophe (CAT) exposure
Occasionally, rates remain flat or dip slightly on accounts that measure up in all categories. Companies that don’t check these boxes are experiencing rate increases of 50% or more.
The following factors continue to affect the property market:
- Severe convective storms lead the market in aggregate losses, ahead of hurricanes: For 2023, Swiss Re has estimated insured natural catastrophe losses at $100B, with severe convective storms (or thunderstorms) the largest driver of loss, accounting for $60B of the total. These events are increasing in frequency and severity, making it difficult for insurers and reinsurers to diversify portfolios.
- More regions are experiencing climate change-related damage: Devastating losses are occurring across the nation, not just on the coasts. “Tornado Alley” has expanded East. Missouri saw flash floods and landslides last year. Freezes, wildfires, wind, and convective storms have pounded Texas. As more people and businesses move to storm-prone areas, losses will only grow.
- Supply chain disruptions persist for products and supplies: These continued challenges affect business interruption (BI) and contingent BI coverage. New construction projects that require specialized equipment experience long lead times — procurement can take between 12 and 24 months.
- New underwriting criteria is trending: Insurers in certain regions are now including crime scores in their decision-making process.