Current Market Trends and Cost Drivers in Commercial Property Insurance
Secondary Perils and Severe Convective Storms
While extreme weather events have been on the rise for over a decade, secondary perils—small to midsized losses or consequent events following primary catastrophes—have become increasingly prevalent in recent years. Namely, severe convective storms (i.e., thunderstorms, hailstorms and tornadoes) have surged in frequency and severity, prompting considerable damage and associated commercial property insurance claims. According to the National Oceanic and Atmospheric Administration (NOAA), 2024 was the worst year on record for U.S. tornado activity in the past 20 years, with nearly 1,800 confirmed events. Additionally, in 2025, the country experienced its first EF-5 tornado in over a decade, which occurred near Enderlin, North Dakota, generating destructive winds exceeding 200 mph. Convective storms pose unique market challenges, as they are often difficult to predict, can strike without warning and affect multiple areas simultaneously. These storms are also becoming more expansive; the NOAA reports that states with minimal loss history are now facing damage from such events. In response, many insurers are readjusting their risk assessment frameworks and pricing models to better account for secondary perils.
Property Valuation Gaps and Underinsurance
Besides secondary perils, property valuation gaps and related underinsurance concerns have significantly impacted the commercial property insurance space. In particular, many policyholders are struggling to maintain accurate insurance-to-value (ITV) calculations. These calculations are designed to help policyholders accurately determine their coverage needs by reviewing an asset’s actual, market and replacement value.
An accurate ITV calculation represents as close to an equal ratio as possible between the amount of insurance a policyholder obtains and the estimated value of their commercial property. Because a property’s value is often affected by the current cost of building materials, continued supply chain disruptions and rising inflation brought on by the shifting tariff landscape have made it harder for policyholders to ensure correct ITV calculations.
As commercial property underwriters tighten valuation protocols and no longer accept vague or unsubstantiated data, inaccurate ITV calculations could prompt extensive out-of-pocket costs and serious coinsurance penalties during the claims process. This, in turn, could lead to partial claim payments, higher deductibles or even nonrenewal, especially as property reconstruction costs continue to rise.
Reinsurance Renewals and Market Capacity
As the commercial property insurance market stabilizes, upcoming reinsurance renewal cycles will prove crucial in maintaining softer conditions. After all, the reinsurance sector plays a
valuable role in the larger insurance landscape, allowing primary insurers to effectively allocate their risks and offer more capacity.
The reinsurance segment has faced substantial setbacks in recent years. This is because increasing market demand and largescale losses have forced reinsurers to make significant payouts, threatening their overall profitability and generating hardened conditions across several lines of coverage, particularly among commercial property insurers dealing with sizeable CAT claims.
During 2025, however, many reinsurers started to see their profits rebound, paving the way for favorable renewals among primary insurers and causing a trickle-down effect of softening conditions for their policyholders.
Even as the market shifts and capacity expands, reinsurers remain cautious in determining their total concentration of risk and approach to various policy attachments and exclusions. Faced with ongoing CAT exposures and other market uncertainties, reinsurers will likely continue to impose strict underwriting guidelines and leverage data-driven decision-making to keep major loss events from disrupting their current trajectory.
Alternative Risk Financing Options
Although softening conditions are allowing many commercial property insureds to benefit from improved coverage terms and pricing, some policyholders are also exploring other innovative techniques to maximize their protection against large and unique losses. These techniques, known as alternative risk financing, are designed to help bridge the gap between complete self-insurance and traditional coverage offerings, thereby enhancing policyholders’ management of risk, capital and market volatility.
Captives are insurance companies formed by parent companies to insure their own risks rather than relying on third-party insurers. Through structured fronting, a licensed insurer writes a policy, but all or most of the risk is passed on to another party (e.g., a captive or reinsurer). These options enable policyholders to secure more customized coverage solutions and possible cost savings.
Article Published By: Zywave, Inc.
