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Commercial rates still rising, but signs of moderating seen

rising rates

Commercial property policyholders can expect upward pressure on rates and restrictive terms and conditions to continue through 2021, though there are some early signs that the market may be moderating, brokers say.

However, risk managers say they have yet to see any easing in the hard market.

Jan. 1 renewals saw ongoing price increases for property accounts, but the magnitude of increases varied, depending on individual account experience and loss history, brokers say.

Pandemic and communicable disease exclusions are universal, while some insurers are limiting strikes, riots and civil commotion coverage. Insurers continue to push back on cyber coverage, and there is greater underwriting scrutiny in general, they say.

In the still-challenged market, insurers are moving away from manuscript policy language to insurer forms that require detailed analysis by brokers to identify possible shortcomings in coverage.

At year-end renewals, there were some positive signs that perhaps the market is starting to stabilize, said Michael Rouse, New York-based U.S. property practice leader at Marsh LLC.

Each month, Marsh has seen a bit more improvement in its renewal experience for its placements, and there is slightly more capacity being deployed today than a year ago, he said.

“The market 12 months ago was much more of a take-it-or-leave-it type of market, whereas now there are a few more negotiations going on from a pricing standpoint. Now, most risks are at or even above what carriers would view as their technical pricing,” Mr. Rouse said.

After 12 quarters of increasing rate, the sense is that the property market may be starting to ease a bit, but there’s still upward pressure on rates, said Rick Miller, Boston-based U.S. property practice leader at Aon PLC’s commercial risk solutions business.

On average, “clients should be expecting pressure of anywhere between 5% and 15% ... in the short term in terms of rate,” Mr. Miller said.

Tougher occupancy classes of property include heavy manufacturing, forest products, risks that have a molten exposure, residential real estate and retail, brokers say.

The food industry is another class of business that has been challenged, with insurers taking a “conservative and cautious” approach, Mr. Miller said.

There was a “wide variance” in renewal outcomes for Jan. 1, said Brian Dove, USI Insurance Services LLC’s national real estate practice leader, based in Dallas.

“It varies tremendously depending on the risk, the location and the quality of risk. For the most part, those that experienced significant increases in 2019 and 2020 saw some moderation,” Mr. Dove said.

Accounts exposed to natural catastrophes, such as hurricane, hail, flood or wildfire, and especially those that experienced losses in those areas are bearing the brunt of the increases in the marketplace, Mr. Dove said.

Even if they haven’t had losses, cat-exposed accounts are seeing rate increases in the 10% to 25% range, he said. For cat-exposed accounts with losses, “the sky is the limit,” with 25% to 30%-plus increases, he said.

Hail and tornado perils are becoming an issue with insurers, said Gary Marchitello, chairperson of Willis Towers Watson PLC’s North American property team in New York.

“We’re seeing a shying away to some extent from that exposure and, more prominently, a push for increasing deductibles for tornado and hail,” Mr. Marchitello said. It’s still a “pitched battle,” with insurers pushing for percentage deductibles and brokers pushing back, he said.

Any market easing has yet to be felt by risk managers.

Instead of leveling out, the market has gone “even more off the rails,” said Mark Humphreys, vice president, litigation and risk management for real estate developer Watt Cos. in Santa Monica, California.

The year-over-year premium increases are sometimes “beyond understanding,” and the retentions that are being asked for are sometimes “untenable for many of my colleagues,” Mr. Humphreys said.

For instance, for certain types of multi-family assets, “especially if it’s an older product that has not been renovated or is in process of being renovated” it could be 20% to 25% rate increases year over year or more, he said.

Watt is already starting to work on its May 1 renewal, updating its statement of values and making sure every piece of construction, occupancy, protection and exposure information is included, he said.

“We’re going to be negotiating with our carrier partners and perhaps some new carrier partners more heavily than we ever have in the past to tell our story, to try and control the cost that we are going to have to ultimately pay and the adjustments we may have to make in how we perceive deductibles and retentions,” Mr. Humphreys said.

If anything, insurers have reduced their capacity, and “we haven’t seen that change,” said Edward Mazman, Boston-based head of property for Liberty Mutual’s Ironshore operation.

“You would think after three years of rate increase, you’d see some carriers come out and say, ‘We’re going to put out a lot of capacity on a risk,’ and we haven’t seen it,” Mr. Mazman said.

Insurers aren’t being dislodged from many placements, though another market may be introduced, he said.

In general, insurers are doing a much more thorough underwriting process and analysis to make sure the risk is something that is mutually agreed with the policyholder for a long-term relationship, said Gregg Cunningham, general manager property at Liberty Mutual Insurance Group.

“I’ve seen more underwriting discipline in the last 12 months than I have probably seen in the prior eight years,” Mr. Cunningham said.








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