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Commercial property insurance rate hikes come off highs


Commercial property insurance policyholders, who have seen continued premium hikes and cuts in coverage since 2018, will likely see more moderate rate increases in the first half of this year as capacity grows and some stability returns, brokers say.

Insurers will still push for higher rates, with catastrophe-exposed properties, loss-hit accounts and more challenged occupancies such as food, public entity and multi-family real estate, seeing increases in the low double digits and higher.

Best-in-class properties with minimal losses will benefit from a more competitive market with low-single-digit increases and even flat renewals possible for some buyers, they said.

The property insurance market is highly dependent on what the Jan. 1 treaty reinsurance renewals bring, said Martha Bane, Glendale, California-based managing director of the North America property practice at Arthur J. Gallagher & Co.

“From what we’ve heard that has been pretty positive, with minimum rate increases and capacity available to fill the demand from primary carriers,” Ms. Bane said.

In 2024, policyholders should expect the level of rate increases to slow after the volatile pricing and terms seen in 2023, she said.

Late-year renewals were “refreshingly better” than they’ve been in the past and the market seems headed toward greater stability, said Rick Miller, Boston-based U.S. property leader for Aon PLC’s commercial risk solutions business.

“I wouldn’t characterize the current market as soft by any means, but we are starting to see oversubscription on our shared and layered programs, which is good news,” Mr. Parro said, adding that most insurers want to grow.

Capacity grows

It’s a more competitive market and more capacity is being deployed, said Michael Rouse, New York-based U.S. property practice leader at Marsh LLC.

“There’s a greater appetite from all markets to protect their renewal book while at the same time trying to grow existing lines on renewals,” he said.

Insurers that took a 10% line historically, may have increased their share to 12.5% or 15% of a risk, Mr. Rouse said. Even for the most difficult year-end renewals “there was without doubt, a better buying environment for clients,” he said.

More capacity may be available, but it still comes with a heavy price tag, said Scott Ritto, vice president of risk management at Kilroy Realty Corp. in Los Angeles and president of the Los Angeles chapter of the Risk & Insurance Management Society Inc.

The company is budgeting for a 30% to 35% potential increase on its property program, which renews March 1. “That’s a very conservative estimate. Hopefully, it comes in less than that,” Mr. Ritto said.

Kilroy increased its values last year and now has total insured values of $7 billion to $8 billion, he said. At last year’s renewal it saw a 27% to 30% rate increase, which was a shock to some of Kilroy’s senior leadership, he said.  

The program carries a $500 million all-risk limit and an earthquake sub-limit of $250 million, Mr. Ritto said. Kilroy did not reduce its limits or increase its deductibles last year but continues to look at whether it should, he said.

The number of insurers on its primary policy has increased to nine. “You’re getting smaller and smaller pieces of capacity from people, and they’re getting a pretty good price for that,” Mr. Ritto said.

Catastrophe losses

A lack of large U.S. wind events last year had a positive impact on insurers’ and reinsurers’ results, but there were more than $100 billion in global insured property catastrophe losses in 2023, according to Gallagher Re’s January renewals report.

Florida wind, California earthquake and wildfire exposures, continue to be challenging, brokers said.

It’s still a bifurcated market, said Jeff Buyze, Fort Lauderdale, Florida-based vice president, national property practice leader, at USI Insurance Services LLC.

For catastrophe-exposed properties, “especially wildfire accounts and coastal accounts in Florida, we’re still seeing some disruption,” Mr. Buyze said.

Capacity is available, but if an account is with an incumbent insurer that has just begun the process of cleaning up its book, the renewal “is going to be more painful,” he said.

USI predicts that catastrophe-exposed or non-catastrophe-exposed property with losses or poor risk quality will see rate increases of 15% to 30% in the first half of the year, down from 25% to 150% increases in the second half of 2023.

Catastrophe-exposed property with minimal losses and good risk quality will see rate increases of 15% to 30%, according to USI’s 2024 Commercial Property and Casualty Outlook, due to be released today.

Severe convective storm exposures are another concern. In the U.S., such losses exceeded $59 billion in 2023, according to Gallagher Re.

Insurers are taking action on terms and conditions on affected accounts and limiting their exposure, Mr. Buyze said.

Severe convective storm is becoming the “loss leader” from a secondary peril standpoint, Ms. Bane said. “Those losses are being absorbed by the primary carriers as the reinsurers have moved up the retention,” she said.

Property development has increased in many areas of the country and events are having a bigger effect on insurers, but price adjustments reflect supply and demand, Mr. Parro said.

“If demand is higher than supply it’s a seller’s market. I’d say we’re getting pretty close to a point of equilibrium,” he said.