The commercial property insurance market remains challenging for public entities.

While rate increases are slowing, double-digit hikes are still likely for local governments and municipalities with catastrophe losses and exposures. 

Underwriters’ scrutiny of property valuations also continues to be intense, as inflation puts pressure on insurable values, experts say.

The past few years have seen numerous catastrophes, such as hurricanes, wildfires, and the pandemic, said Marcus Henthorn, managing director, public sector and K-12 education, at Arthur J. Gallagher & Co. in Rolling Meadows, Illinois.

Abnormal weather in the central United States, specifically related to convective storm, is a major factor in the property insurance market, he said.

“We are continuing to see rate increases, changes in terms, and creativity as it relates to structures,” Mr. Henthorn said.

High-quality risks see lower rate hikes, with flat to 5% increases, said Brian Dove, Dallas-based national real estate practice leader at USI Insurance Services LLC. “We’re not seeing the increases we saw in 2020 and 2021,” he said.

But catastrophe-exposed public entity risks are under stress as the cost of capacity continues to rise. Many of those buyers are purchasing less limit than in the past, Mr. Dove said.

“Is that a good decision from a budget perspective? Yes. But maybe not from a risk perspective,” he said.

One of the challenges public entities face is that some, such as school districts, may have a large footprint and roof area exposed to tornadoes and convective storms, for example. Roof maintenance, and the age of roofs will factor into the pricing and capacity, Mr. Dove said.

Twane Duckworth, managing director, risk management, for the city of Garland, Texas, and a Risk & Insurance Management Society Inc. board member, said the market has shifted from a more relaxed outlook at the start of the year to one of steady, if not continuous increases. 

“Double-digit increases are not out of the norm when it comes to property,” he said.

Garland’s property program, which renews Oct. 1, has about $1.5 billion in total insured value, a large portion of which is skewed towards its utility assets, he said. All the property is concentrated within 56 square miles. 

Mr. Duckworth’s plan is to communicate with underwriters about the municipality’s relatively low loss history and the composition of its facilities being insured. A comprehensive appraisal of its assets has also been performed, with the report to follow, he said. 

“I paid several tens of thousands of dollars to have all of our water and utility plants appraised. I wanted to make sure there was integrity and credibility within my replacement cost values so that the insurers could feel confident that what they are underwriting is an appropriate amount for a fair premium,” he said.

Insurers are focused on valuation, inflation and accurate data as it relates to property schedules, Mr. Henthorn said.

“Carriers may not be coming to you trying to get all of the increase in rate. They may be coming to you saying, ‘As a result of inflation, inaccurate data, you appear to be 10%-20%-30% underinsured as it relates to valuation,’ which makes appraisals so much more important,” he said.

For municipalities with historic buildings, such as cities in the Northeast, valuation issues are even more focused, Mr. Dove said. 

In the case of a loss, cities may not be able to source materials of like kind and quality to rebuild, he said.

Maintaining accurate valuations is a concern, especially given supply chain challenges, Mr. Duckworth said. Construction materials and labor costs can change radically from the start to the end of a building project, so in the case of a property loss, if an appraisal was done three to five years ago, replacement costs may be significantly higher than expected, he said.