Continued softening in property insurance prices during the first half of this year and abundant capacity are giving insurance buyers the upper hand during midyear renewals, observers say.

For this year's first quarter, property rates decreased about 5%. In the second quarter, property rates continued to fall, with some buyers seeing double-digit rate declines amid plentiful capacity and intense competition, insurers and brokers say.

“In 27 years, I have never seen so much capacity,” said Alexandra Glickman, area vice chairman of Arthur J. Gallagher Risk Management Services Inc. in Glendale, Calif. “Everyone is realizing that their budget is not being made. Even with the losses from the earthquake in Chile...it hasn't moved the needle.”

While noncatastrophe property coverage remained soft, pricing for catastrophe-exposed property remained firm, brokers and insurers said.

Still, Ms. Glickman said underwriters are scrutinizing proposals for wind coverage in areas such as the Midwest due to the recent uptick in tornadoes and damaging thunderstorms in the region.

According to data compiled by the National Weather Service, preliminary 2010 data shows there were 197 tornadoes in April; 201 tornadoes in May and 355 tornadoes in June. Actual tornadoes reported in 2009 were 226 in April; 201 in May and 270 in June.

“Some hail and tornado losses in the Midwest used to be pretty benign, but not so much anymore,” Ms. Glickman said.

Brad Wood, senior vp-risk management for Marriott International Inc. in Bethesda, Md., renewed Marriott's hotel and time-share insurance programs effective April 1. He said he had no trouble getting coverage placed, but some insurers reduced the amount of their deployed capacity, which forced him to use more insurers for the hotel chain's insurance program.

“It's a more elaborate program than in years past in terms of the number of insurers involved,” Mr. Wood said. “We ended up with a patchwork-type quilt of a program, but we got the coverage we needed.”

Some questions insurance buyers might have as they shop for commercial property insurance might include sustainability of the programs offered and the insurer's capacity consistency. Mr. Wood said consistency on capacity from year to year allows buyers to get an idea of an insurer's stability.

Further, the sustainability of the insurance programs offered must be considered when budgeting for renewals in 2011, some insurers said.

“It's important to have your house in order and know your risk locations and values as well as be able to differentiate risks,” said Randy Schreitmueller, vp at Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global. “It's kind of like taking that look-before-you-leap mentality. Make sure what the insurer is putting on the table is sustainable and doesn't just last through the market cycle.”

One way FM Global is looking to generate renewable business is offering a membership credit, which is a credit that averages 13% for all clients that place business from June 30, 2010, through June 29, 2011. The credit is based on the tenure of the client with a maximum credit of 20%, Mr. Schreitmueller said. New clients could receive a credit of as much as 5% on their programs, he said.

Mark Bernacki, London-based head of Beazley Group P.L.C.'s U.S. property group division, agrees with Mr. Schreitmueller's opinion on sustainability. While this year's property market conditions are “amenable,” uncertainty exists as many lines are “approaching levels that can't warrant additional rate decreases,” he said.

“This, in conjunction with an unexpected active U.S. hurricane season and earthquake losses from Chile and other large events, will continue to place upward pressure on the future market,” Mr. Bernacki said in an e-mail.

Insurer security has become more important than in the past, said Al Tobin, national property practice leader for Aon Risk Services in New York. He said many lenders mandate a certain credit rating level of insurers, especially those that work on a global level, due to credit risks.

Some lenders are even demanding that those applying for a loan drop insurers that have a Standard & Poor's Corp. credit rating that is less than A, Ms. Glickman said.

For Wayne Salen, director of risk management for Labor Finders International Inc. in Palm Beach Gardens, Fla., the relationship with insurers and their ability provide coverage that fits the needs of a business is a key consideration.

Mr. Salen said he recently completed renewals and found insurers willing to offer premium reductions of 10% to 15% with improved terms and conditions. Some of that was caused by a reduction in exposures, but he also attributed the favorable buying experience to his relationships with his insurers and their knowledge of his business.

Mr. Salen said that despite recent scrutiny of American International Group Inc., he continues to place business with Chartis Inc. because the property/casualty insurer knows the temporary staffing industry, particularly the industrial side.

As far as emerging risks, solar, biodiesel and renewable energy technology are generating interest, Mr. Bernacki said.

The risks involved with vacant buildings, particularly on the real estate side, are another growing risk, said Charlotte Stone, Glendale, Calif.-based managing director of worldwide property practice group and executive vp for Gallagher Real Estate & Hospitality Services, a unit of Gallagher Risk Management Services.

“The vacancy rate on property risk is going through the roof right now,” Ms. Stone said. “Urban mining losses are up as well, with equipment such as copper wiring, piping and other building materials being stolen off of construction sites.”