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Property insurance revisited

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Property insurance revisited

The soft commercial property insurance market has turned a corner, with 22% of risk managers surveyed this year by Business Insurance — double the 11% in 2016 — reporting renewal rate increases. Consequently, those reporting rate decreases has gone down to 33% in the most recent survey from 53% two years ago.

In March 2018, Business Insurance repeated a 2016 survey of risk managers to get the latest trends and better insights in the commercial property insurance sector, specifically from the buyer’s perspective. The result of this survey is based on responses from 144 risk managers and/or insurance buyers who are involved with insurance purchase decisions for their organizations and whose organizations currently have an insurance program that covers property or property-related damages. The base used is the total answering each question.

Compared with 2016, insurers and reinsurers are now better able to increase prices or discount less. Rates decreased by an average of 5.7% in 2018 versus 7.8 % that saw rates decrease two years ago. From the survey, even those who saw rates increase saw larger increases on average than two years ago. However, this should be taken with a grain of salt because of the low base of respondents who saw rates increase in both 2016 and 2018.

Compared with the last survey, it does not look like there is a trend for risk managers shifting their risk to captive insurers in 2018. In fact, only 15% of our respondents, compared with 16% in 2016, use a captive to insure some or all of their property risks.

Sixty-eight percent of the risk managers surveyed said their organizations have terrorism coverage, either included in the property insurance coverage or added to coverage at additional cost. Organizations pay on average 3.5%, compared with 3.1% in 2016, in additional premium to add terrorism coverage.

For the 2018 survey, an average of 3.6 insurers participated in an organization’s property insurance program, covering an average of $2.2 billion in total asset value with an average total annual premium of $2.3 million. This compares with 3.6 participating insurers covering $3 billion in total asset value at $2.1 million average total annual premium in 2016.

Fifty-eight percent of respondents used only one insurer to cover all their properties. There was an average of 181 properties or facilities covered per property insurance programs, with 81% of the covered properties located in the U.S. and 19% outside of the U.S.

Forty percent of the properties under coverage qualify as a highly protected risk or its equivalent. HPRs are property risks that meet the standards required for lower rates, usually properties protected by sprinklers, and have better-than-average construction and occupancy.

The last time respondents switched their property insurers was about 8.7 years ago on average, the same as in 2016. The top two factors when deciding which property insurance to use were breadth of coverage and price, at 91% and 75% respectively. Value-added services moved up to the third spot, taking over servicing team members as the third-most important factor when deciding on insurers. Seventy-three percent, compared with 69% in 2016, of the risk managers surveyed this year said their organization’s policy providers offered some value-added services, such as engineering reviews, risk analysis of properties and loss-control or loss-prevention reviews.

Ninety-three percent of the risk managers surveyed this year and in 2016 said they were satisfied with their current property insurance policies. But this year, only 3%, down from 7% in 2016, said they will be looking to change their principal property insurance in the coming year. In the past 12 months, 49% of respondents said they have filed a claim, only 7% of which were disputed by their insurers.