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Property insurance deconstructed

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Commercial property insurance buyers are enjoying a soft market, most have not changed their insurers for some time, and few are looking to change them any time soon, according to Business Insurance’s latest exclusive risk manager survey.

Increased competition among insurers translated to real cost decreases in the property insurance market, according to risk managers surveyed for the Business Insurance proprietary Risk Management Insight Panel.

Fifty-three percent of the 122 risk managers who responded said their property insurance rates have decreased, with an average decrease of 7.8% at the last renewal. Thirty-four percent said their rates remained the same, while only 11% saw rates actually increase.

The Business Insurance Risk Management Insights Panel was created in 2015 to help provide a platform for risk managers to share and learn of common issues they face across different industries. It aims to provide risk managers’ point of view. To this end, panel members were asked to participate in an online survey with regard to their property insurance coverage and how they are adjusting to changing market conditions. An email was broadcast July 7, 2016, to 463 panel members; by the close of the survey, 124 responses had been received for a response rate of 27.2%. The following report is based on total responses from these respondents.

Almost all — 99% — of the respondents currently have an insurance program that covers their organizations’ property or property-related damages.

Sixty percent of the respondents used only one insurer to cover all their properties. Of those who do not have non-U.S. properties, about 43% prefer to deal with just one insurer for all their property damages. There are an average of 230 properties or facilities covered per property insurance program, with 86% of the covered properties located in the U.S. and 14% outside the U.S.

There may be an increasing trend to shift risks to captives; currently only 16% of our responding risk managers use a captive to insure some or all of their property risk. This trend may be worth monitoring.

Based on responses received, there are an average of 3.6 insurers participating in a property insurance program, covering an average $3 billion in total asset value with an average total annual premium of $2.1 million.

According to the survey, the top two most important factors when deciding which property insurance to use are breadth of coverage and price, 88% and 75% respectively. Servicing team members and value-added services ranked a distant third and fourth respectively.

However, when we asked respondents what are the three most important things they will be looking for to motivate them to switch insurers, price was the top motivating factor at 63%, followed by coverage, 57%, and value-added services, 35%.

Even though value-added services did not factor highly in the decision-making consideration and is a distant third in motivation to switch carriers, 69% of the risk managers surveyed said their organization’s policy providers offered some value-added services. Some most common value-added services are engineering reviews, risk analysis of properties and loss control or loss prevention reviews.

Fortunately for insurers, 93% of the risk managers are satisfied with their current property insurance policies. Only 7% said they will be looking to change their principal property insurance in the coming year.

Forty-one percent said they have filed a claim in the past 12 months, only 4% of which were disputed by their insurers.

In a competitive soft-market environment where there is overcapacity, risk managers are increasingly looking to their property insurance providers as partners. As one of the respondents put it, it is “critical to us that our property insurer understand our business and where the material risks are. We want them to constantly challenge where our losses could arise.”