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Many commercial policyholders are seeing more difficult conditions for property insurance at midyear renewals, as accelerating rate increases and capacity reductions for certain risks gain traction.
Multiple years of rate reductions, record catastrophe losses in 2017, a further hit from attritional losses in 2018 and ongoing consolidation — as well as senior management changes at leading insurers — are resulting in greater discipline on the part of insurers, experts say.
Insurers are insisting in 2019 that each product line including property return to profitability, said Duncan Ellis, U.S. property and alternative transfer leader at Marsh LLC in New York.
Some 60% of Marsh’s property accounts are seeing rate increases at midyear renewals, compared with 54% in 2018, 31% in 2017 and 24% in 2016, Mr. Ellis said.
“Catastrophe business is up about 13.1% year-to-date on rate and noncat about 5.5%. The book is getting the rate uplift where it needs to, meaning those catastrophe-exposed risks,” he said.
“Our firm belief is that catastrophe pricing must go up,” said Michele Sansone, president of the North America property insurance business for Axa XL, a unit of Axa SA, in New York.
“From our perspective, we’ve been consistent in the capacity, we just don’t think we’re getting paid enough for it — in fact we know we’re not getting paid enough for it — so we need to drive that pricing,” Ms. Sansone said.
Average rate increases across property coverages have been “north of 15%” in the second quarter, said Rick Miller, Boston-based U.S. property practice leader at Aon PLC’s commercial risk solutions business.
“Accounts that have had loss activity over last couple of years saw worse, north of 25% across the board, which would include some with catastrophe losses,” said Mr. Miller.
Accounts with wind exposure in coastal areas are “most difficult,” while there’s a “little less pressure” on the earthquake market, he said.
However, the industry still has capacity, Mr. Miller said. “It’s a rare situation where we would struggle to complete a program. That’s a positive thing right now.”
“It’s not uncommon to see 20% to 50% (rate increases) and occasionally 100% or more. It’s not a one-size-fits-all hard market, it’s very discriminating,” said Gary Marchitello, head of property broking for North America at Willis Towers Watson PLC in New York.
“Rates are up across the board generally, but each account is written on its own merits, (considering) loss history, catastrophe component, retention and loss protection. Even benign accounts with low catastrophe content and a good loss history are seeing increases in the single digits to low double,” Mr. Marchitello said.
The level of rate increase for catastrophe-exposed property risks also varies by industry sector, experts say.
“If I were to just look at hospitality, (the rate increase) would be north of 25%. We’ve got cat-exposed business, i.e. real estate, health care and higher education seeing increases, but not to the degree troubled classes of business are seeing,” said Mr. Ellis.
Coastal properties with lower construction quality are seeing the biggest increases, especially those that have experienced losses, said Brian Carlson, Fort Lauderdale, Florida-based senior vice president and Southeast regional property/casualty practice leader at USI Insurance Services LLC.
“We used to be able to see reasonable rates. Now people are looking at 25% to 40% increases,” he said.
Habitational risks have also been “challenging,” with frame properties in Florida that have had losses seeing “huge” rate increases, said Mr. Carlson.
Another shift in the property market is that some insurers are offering lower limits and there’s much greater syndication of risk with more insurers needed to fill out programs, experts say.
“Carriers are de-risking their books, so some carriers have pulled back limits, mainly in catastrophe business,” said Mr. Marchitello.
In the case of large, complex risks, including those with catastrophe exposure, “If it was a shared layered placement with 10 carriers on it, you’re going to see more like 15 to 20 carriers on renewal,” he said.
Terms and conditions are also narrowing, with deductibles going up particularly on catastrophe-exposed accounts, brokers say.
As a result of the attritional losses, there has been “a big push to get plain old deductibles up and a push to get catastrophe deductibles up,” said Mr. Marchitello.
“The corollary to that is it’s not uncommon if there’s typically percentage deductibles for wind zones, to have a dollar cap put on them, so there’s been a push to get the percentages up and to remove or raise the dollar caps,” he said.
Another change is that property insurers are no longer giving buyers policy enhancements, such as coverage for wind-driven rain, as part of their property policy, said Mr. Carlson.
Insurers are “either not going to offer it, or they want you to pay an additional premium for it,” he said.
In this seller’s market, loss prevention and the ability of organizations to differentiate themselves from their peers become even more important, experts say.
Loss prevention and risk engineering are key, said Ms. Sansone.
“Any time you’re improving the risk profile from a buyer perspective … it would help their profile which would improve their technical price which may reduce their overall increase,” she said.
“In the softer market, it’s like a battle of sameness where everybody claimed they were best in class. Well not everyone is best in class,” said Mr. Ellis.
Accounts that can show they have business continuity plans, capital expenditures on improvements, and that they are better year over year from a risk perspective “are the ones that are going to get the best deals,” he said.
Umbrella and excess liability markets are leading the march upward for casualty markets as rates increase and capacity shrinks, according to insurers, brokers and analysts.