The market for commercial property insurance is still challenging for public entities.
Although interest rate increases are slowing down, double-digit increases are still likely for local authorities and municipalities with catastrophic losses and exposures.
Underwriters’ review of property valuations also continues to be intense, as inflation puts pressure on insurable values, experts say.
Recent years have seen many disasters, such as hurricanes, forest fires and pandemics, says Marcus Henthorn, CEO of the public sector and primary education, at Arthur J. Gallagher & Co. and Rolling Meadows, Illinois.
Abnormal weather in the central United States, specifically related to convective storms, is a major factor in the real estate insurance market, he said.
“We continue to see speed increases, changes in terms and creativity in terms of structures,”; Henthorn said.
High-quality risks see lower interest rate hikes, with unchanged increases to 5%, says Brian Dove, Dallas-based national real estate agent at USI Insurance Services LLC. “We do not see the increases we saw in 2020 and 2021,” he said.
But risks to disaster-prone public entities are under stress as capacity costs continue to rise. Many of these buyers buy less limit than before, said Mr. Dove.
Is it a good decision from a budget perspective? Yes. But maybe not from a risk perspective, he said.
One of the challenges that public entities face is that some, such as school districts, can have a large footprint and roof surface that is exposed to, for example, tornadoes and convective storms. Roof maintenance and the age of the roofs will affect the pricing and capacity, said Mr. Dove.
Twane Duckworth, executive director of risk management for the city of Garland, Texas, and board member of the Risk & Insurance Management Society Inc., said the market has shifted from a more relaxed outlook at the beginning of the year to a steady, if not continuous, increase.
“Double-digit increases are not out of the norm when it comes to real estate,” he said.
Garland’s property program, which renews on Oct. 1, has about $ 1.5 billion in total insurance value, much of which is skewed toward its public assets, he said. All property is concentrated within 56 square kilometers.
Mr. Duckworth’s plan is to communicate with insurers about the municipality’s history of relatively low losses and the composition of its insured facilities. A comprehensive valuation of its assets has also been made, with the report that follows, he said.
“I paid tens of thousands of dollars to have all our water and public utilities evaluated. I wanted to make sure that there was integrity and credibility within my compensation cost values so that the insurance companies could feel confident that what they were guaranteeing was an appropriate amount for a reasonable premium, ”he said.
Insurance companies are focused on valuation, inflation and accurate data when it comes to property schedules, Henthorn said.
“Carriers may not come to you to try to get the full price increase. They may come to you and say: ‘As a result of inflation, incorrect information, you seem to be 10% -20% -30% underinsured in terms of valuation’. , which makes values so much more important, he said.
For municipalities with historic buildings, such as cities in the northeast, valuation issues are even more focused, Dove said.
In the case of a loss, cities may not be able to buy materials of a similar nature and quality to rebuild, he said.
Maintaining accurate values is a problem, especially given the challenges in the supply chain, Duckworth said. Building materials and labor costs can change radically from the beginning to the end of a construction project, so in the case of a property loss, if a valuation was made three to five years ago, the replacement costs can be significantly higher than expected, he said.