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Competitive market drives down property insurance prices

Posted On: Jul. 3, 2016 12:00 AM CST

The buyer's market in commercial property insurance is alive and well.

Property rates continued to drop generally by single digits during this year's midyear renewals, risk managers, brokers and insurers say.

They also say capacity remains more than plentiful, and competition is still the name of the game among underwriters.

But there are signs that the rate decreases are beginning to narrow, and for good reason: Underwriters can't afford to trim them much more.

For now, however, “the buyers' market continues and there is no end in sight,” said David Finnis, Atlanta-based executive vice president and head of property broking at Willis Towers Watson P.L.C.

Buyers agree.

“We found the property market incredibly soft” when renewing a property program in May, said Mark S. Humphreys, vice president of litigation and risk management at Santa Monica, California-based Watt Cos. Inc.

Most of Watt's assets are on the West Coast, which means the commercial real estate firm has “a huge earthquake exposure,” Mr. Humphreys said. But he found that all rates were lower than those of last year, even for earthquake.

In fact, Watt increased its earthquake limits $15 million at a price lower than it paid last year; overall, the company reduced its rate by about 5%, Mr. Humphreys said.

“Companies are finally looking at engineering data and pricing the risk accordingly,” said Mike Liebowitz, senior director of insurance and risk management at New York University. He said NYU enjoyed single-digit rate decreases for its July 1 property renewal, despite the fact that “we're the insured that had the big flood loss” from Superstorm Sandy in 2012.

“But I think there's going to be a bottom where we begin hitting minimum premiums,” Mr. Liebowitz said.

While saying that insurers in general and American International Group Inc., the university's main insurer/property insurer, “has treated me extremely fairly,” it's because “they're understanding the risk better, which enables them to treat me fairly.”

“Insureds are getting the credit for doing the good things,” which Mr. Liebowitz said “makes good business sense.”

On average, property rates are down 7% to 9%, said Rick Miller, national property practice leader at Aon Risk Solutions in Boston. He said some clients are completing their fourth renewal with lower rates amid strong competition, plentiful capacity, and broad terms and conditions.

There are “lots of choices for the clients,” he said. “Lots of competition.”

“It continues to be a slow and gradual falling off the cliff,” said Alexandra Glickman, area vice chairman and managing director-practice leader of real estate and hospitality at Arthur J. Gallagher Risk Management Services Inc. in Glendale, California. For the first five months of the year, “the average rate decrease for noncombustible assets has been approximately 10%.”

“(Catastrophe)-driven accounts have seen more of the rate reductions,” said Duncan Ellis, New York-based U.S. property practice leader at Marsh L.L.C.

In addition, he said, a “fair amount of competition” has entered that market.

“There's going to come a point where companies will have to evaluate where to put their capital; do you come out of property and go into cyber or some other line?” he said. “We don't see any of that happening yet.”

“We find decreases are slowing down in the smaller middle market accounts —- that market has been softer a longer period,” said Willis Towers Watson's Mr. Finnis. “The issue is there's not much left to cut out if those programs.”

Still, he said, some larger accounts are still enjoying decreases of 10% to 12.5%.

“The market remains competitive, and it's still a soft market,” said Mike Turner, executive vice president at FM Global in Johnston, Rhode Island. “The major change is the pace of reductions has certainly decreased. It's the result of several years of compounding of reductions.”

Mr. Turner said that could indicate the bottom of the market cycle as underwriters suggest changes in terms and conditions rather than “giving up premium.”

He said rates were flat to down 5%.

“It's quite similar to this time last year,” said Derek Talbot, division chairman of North America property at Chubb Ltd. in Philadelphia. “There is abundant capacity on both the insurance and reinsurance sides across all market segments. That capacity has certainly put continued pressure on rates. Companies are certainly making sure they're holding on to their existing books of business. I think most companies are focused on protecting their existing portfolios.”

“In general, our top line is up,” said FM Global's Mr. Turner. “We always have very high retention rates and our new business is better than in the past.”

“That says change might be in the wind,” he said. “So far this year, our retention rate is about 98%. Clients are savvy enough, so now they want to be in the right place when the market changes.”