Businesses Are Finding a More Favorable Commercial Property Insurance Market

CMR Risk & Insurance Services Inc. > Blog > Property and Casualty > Businesses Are Finding a More Favorable Commercial Property Insurance Market
Posted by: CMR April 29, 2024 No Comments

The spring of 2024 marks a turning point in the commercial property insurance market. After six years of challenging conditions, the market has transitioned and many buyers are now in a more favorable position.

As with previous market spikes, this last hard market cycle saw limited capacity as carriers struggled to generate consistent returns on highly exposed catastrophe portfolios. Hurricanes HarveyIrma and Maria triggered this prolonged hard market cycle at the end of 2017. The market had not witnessed such a long cycle in our generation.

Previous spikes were relatively short-lived as new players emerged, typically within 12-18 months. However, this time, capacity was asphyxiated, leaving existing carriers and potential new entrants struggling to envision a way to make a consistent return on investment. Furthermore, there was no new capacity entering the market, which only served to compound the challenging conditions.

However, in late 2023, insurers started to selectively entertain business that may not have been previously considered. Some buyers started to receive multiple quote options rather than “take it or leave it” ultimatums. These early signs indicated that the tide might be turning.

Another positive indicator was the return of the word “pipeline” in conversations among brokers and the underwriting community. After a relatively quiet 2023 in terms of mega catastrophes, many insurers were returning to profitability and growth expectations for 2024 started to emerge.

The rumor that well-performing January 1 catastrophe reinsurance treaty renewals were set to be comparatively benign supported the notion of a moderating market. This was true, as a more measured approach was observed in many instances. The balance between supply and demand of capacity started to level out after a turbulent 18 months.

In 2024, some brokers adopted a refreshed outlook, especially on more sophisticated shared and layered property programs. Many of these programs had been somewhat artificially bloated from a premium spend standpoint. Opportunistic capacity on prior renewals had presented buyers with a dilemma: Self-insure one or multiple parts of a program, purchase lower limits, consider non-traditional risk transfer mechanisms or pay inflated premiums to fill out a program. None of these options were easy for businesses to digest.

However, following a more favorable catastrophe treaty reinsurance renewal season and increased insurer growth goals, competition emerged. Cautious broker optimism gave way to bullish offense as many insurers expanded their risk selection criteria and looked to increase capacity. While incumbent markets were not initially cutting rates, the expanded appetite from the overall market put pressure on the highest priced players. This presented a relatively simple way of alleviating rate pressure when architecting a shared and layered program. After all, the nail that sticks out the furthest ultimately tends to get hit the hardest.

Hard market cycles are never infinite, and the pendulum finally started to swing at a quicker pace than some expected. Capacity has become more malleable and many programs will be restructured to take advantage of the market tailwinds. On multi-carrier placements success can often be achieved by generating market competition, targeting more creative retentions, expanding primary limits and eradicating buffer layers as brokers look to offer the best solutions for their clients.

While there has been an obvious market shift on complex, often catastrophe-driven placements that require multiple carrier participation, the same cannot be said for historically more straightforward, single carrier renewals. These accounts will not necessarily achieve the same results, as they have much less catastrophe exposure and are already subject to lower account rates.

However, a holistic review of portfolios by most insurers has led to renewed energy in this space. Although incumbents are reluctant to offer meaningful rate reductions just yet, competition can be found on many best-in-class accounts as numerous carriers look to re-enter this space and grow their single-carrier portfolios. While there are still instances where certain carriers are non-renewing ground-up business, this segment is far more settled now than during the peak years of the hard market.

Although we are now in a more fertile marketplace, challenges remain. According to Marsh McLennan Agency’s 2024 Commercial Property Insurance Trends Report, these headwinds may include severely loss-driven accounts, adequate valuation concerns, buyer ambivalence towards risk control, and historically high hazard occupancy classes.

Insurers will also continue to scrutinize secondary perils such as tornadoes, severe convective storms, wildfires, and winter freezes on an individual account and portfolio basis as they strive to underwrite a profitable book of business. However, barring a major catastrophe in 2024, the positivity and signs of easing in the macro commercial property space will continue to improve.

As we navigate the remainder of the year with restored vigor, underwriters will be balancing premium with profit, just as brokers will need to be at their best to balance market relationships and expectations while striving to achieve optimal results for their clients. After all, it’s high time businesses finally start to hear some good news about their property insurance placements.

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Article Written By:  Matthew Wright

Author: CMR

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