The property insurance market will continue to harden through 2021, with rising exposures and reinsurance costs driving primary rates higher, according to a report from wholesale broker Risk Placement Services (RPS).
RPS expects rate increases in the high-single digits to 15% range on clean accounts. Increases are expected to be higher on accounts with losses. The premium hikes are no surprise, given the effect of climate change on natural disasters and increased rebuilding costs.
“Every commercial property insurance buyer will feel the effect of a firming market,” RPS said. Insurers have implemented tougher underwriting disciplines, with new exclusions for communicable diseases and strike/riot/civil commotion being introduced. The report also cited a shift from flat-dollar catastrophe deductibles to percentages as high as 5%. Buyers should also expect to see restrictions on business interruption coverages.
As the market tightened, RPS said the excess & surplus (E&S) insurance industry has seen increased demand—premiums written through the E&S market rose 11.2% in 2018 and 2019. The number is expected to rise as a few admitted property insurers have withdrawn from certain areas, especially the Midwest and wildfire-exposed California regions.
However, even E&S insurers are being more judicious in their capital deployment, according to RPS. Buyers require more carriers to build excess coverage towers, but RPS cited a “bright spot on the horizon” with the entry of new insurance-linked securities (ILS) investors coming into the market.
“We’ve seen a lot of changes in appetite, in available capacity and in the property market in general,” RPS’ Executive Vice President of Property Christa Nadler said. “We’ve seen property accounts that last year took one or two carriers now needing four or five to get it done.”
RPS emphasized the impact reinsurance has on primary rates, with property insurers seeing hikes of 15% to 20% at the Jan. 1 renewals. Midyear renewals in 2020 resulted in average increases of 25% to 35%, according to RPS.
“Though the reinsurance industry was disappointed in the amount of rate they received at this year-end renewal season relative to expectations, they will still play a larger role in rates, capacity and terms as carriers continue to improve their book composition and move toward the use of technical pricing,” Wes Robinson, national property brokerage president at RPS, said. “Although the rate environment has much improved for them, the losses have not let up, so many carriers are still not making money.”
A key focus for 2021 will be improving accuracy of valuations. RPS explained that higher rebuilding costs have pushed many claims into the excess layers of coverage, taking excess carriers by surprise and prompting insurers to price risks up to 40% higher than catastrophe models would suggest.
“Insurance-to-value is a very, very hot topic, and it will be again for 2021,” Stephen Adair, senior vice president at RPS, said. “It has been challenging placing excess coverage without solid valuations.”
The hard property market will shift agents and brokers into overdrive, requiring extra time to identify creative solutions to fit their clients’ budgets, RPS predicted. “Experience and relationships still matter in today’s market, maybe now more than ever,” RPS said.
“Maybe the worst is behind us,” James Rozzi, RPS executive vice president, said. “The last quarter of 2020 showed some positive signs, with new capital coming in. But, if insurers can’t make money, they will move their capacity.”
Source- Zywave, Inc.