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Property insurers focus on high-risk exposures at mid-year renewals


Commercial property insurance buyers saw limited wildfire capacity, greater scrutiny of time element coverages and a push to ensure accuracy of valuations at mid-year renewals as price increases continued to tick down.

Recent losses such as the first-quarter Texas winter storm and freeze and the June 24 collapse of a condominium building in Surfside, Florida, are examples of the unexpected losses that property insurers can face, brokers say.

Whether property rate increases continue to moderate for the remainder of 2021 will depend in part on how the Atlantic hurricane season unfolds.

Average property rate increases in the high single digits to the mid-teens are the norm, but for loss-hit accounts and certain challenged occupancy types increases can be 20% to 30% or even higher, they say.

Tougher occupancy classes of property include habitational, heavy manufacturing, forest products, risks that have a molten exposure, food and recycling, brokers say.

While underwriters are still looking to push rates on accounts where they feel it is needed, desirable business is “quickly moving toward a flat market environment,” said Rick Miller, Boston-based U.S. property practice leader at Aon PLC’s commercial risk solutions business.

“Business that has performed well from a loss perspective and also those accounts deemed to be more desirable from an occupancy perspective are seeing reasonable, borderline flattish terms,” Mr. Miller said.

“Capacity is ample and, if anything, what we are seeing in a more competitive market is underwriters willing to put out larger lines,” he said.

Rate increases have slowed, said Rick Moraller, Dallas, Texas-based complex property leader at CAC Specialty. He gave the example of a technology account, “a well-engineered risk with a clean loss experience,” which last year had experienced a 23% rate increase in the pandemic.

“This year, the insured was more prepared for their renewal. We had the proper data and were fortunate to have the time to market the account and develop the appropriate strategy and were successful in achieving a 3% increase at renewal,” he said.

While rare, a few accounts are seeing rate decreases, several brokers said.

A handful of programs saw rates decrease, but typically there’s an explanation for the drop, said Michael Rouse, New York-based U.S. property leader at Marsh LLC.

“If it’s moving from one carrier to another, maybe on a single carrier deal, maybe on some shared and layered business where we’ve replaced some capacity or we’ve changed structure, we were able to drive savings for our clients,” he said.

Christy Kaufman, Madison, Wisconsin-based vice president of risk management at Zillow Group Inc., said the company’s corporate commercial property insurance program that renewed June 20 saw a 1% to 2% decrease.

An excellent loss history, a multiline relationship with its insurer, and the fact that Zillow executives participated in underwriting meetings helped, Ms. Kaufman said. Zillow has a standard commercial office footprint and some 6,000 employees.

“We asked for a decrease. Sometimes, something that is lost on risk professionals is that it never hurts to ask. Initially, the insurer came in about flat, and we asked if they could do better and they shaved off a little bit,” she said.

But such rate decreases are atypical in the current market, even if the rate of increases is slowing, risk managers say.

BlackRock Inc. saw an average increase of 15% to 20% per location at the renewal of its U.S. real estate equity portfolio in June, said Lori Seidenberg, global director of real assets insurance risk management at BlackRock in New York. “We were able to maintain our below-market deductibles, which is a plus,” she said in an email.

COVID-19 protocols, the effect of the pandemic on individual property revenue, and how property managers mitigate the risk of human trafficking in their hotel portfolio were all areas of focus for insurers, Ms. Seidenberg said.

Catastrophe exposures, including hurricanes, wildfires, hail and tornados, continue to draw greater scrutiny from insurers, brokers say.

Wildfire capacity is limited, with a significantly smaller group of insurers willing to write the risk, said Brian Dove, USI Insurance Services LLC’s national real estate practice leader, based in Dallas.

“Wildfire is insurable, but barely,” said Wes Robinson, Atlanta-based national property brokerage president at Risk Placement Services Inc., the excess and surplus lines broker and managing general agent unit of Arthur J. Gallagher & Co.

Rates have increased andthe limits that are deployed are very small with hefty deductibles. It’s tough,” Mr. Robinson said.

“If you’re located in a large structure somewhere in the Malibu Hills that’s going to be very difficult to insure,” he said.

Tornado and hail risks are highly scrutinized, said Gary Marchitello, chairperson of Willis Towers Watson PLC’s North American property team in New York.

“There’s been a push to impose percent deductibles for tornado and hail, much like for wind,” he said. “The fight is still being fought in terms of the widespread migration of deductibles to percentages,” Mr. Marchitello said.

Accuracy of property valuations is another area of focus in the market, where there is potentially a restriction in the amount policyholders can recover based on the level of valuation, Mr. Dove said.

“A lot of these past large events have shown and reflected the inadequacy of values. … The demand surge, the material costs and contractor costs were significantly escalated in those large events,” he said.

The situation is worse now because there are shortages and supply chain issues arising from the pandemic. “What would have taken 12 months at a reasonable cost to rebuild now can take 16 months, and it can be 20%, 30%, 40% more,” Mr. Dove said.

Contingent time element coverage is also being scrutinized by insurers, driven by some of the events that have occurred in the market in the past six months, Mr. Rouse said. “It’s all about providing a good amount of information and data to insurers,” he said.

COVID-19 pandemic-driven supply chain disruptions have led to a chip shortage that has hit the auto sector, causing some carmakers to halt production.

While several London-market brokers have developed facilities to provide some level of coverage for virus, bacteria and communicable disease exposures, they are not necessarily being pursued by many policyholders, Mr. Moraller said. The price of the coverage makes it cost-prohibitive, he said.