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Insurance for commercial properties is rising again



Commercial real estate interest rates rose again at the turn of the year, albeit at a more moderate pace, and the total cost of programs rises as inflation drives up values ​​and premium costs.

The average real estate interest rate hikes were in the middle of single digits or even unchanged for good quality risks with correct valuations, no loss-making activity and no catastrophic footprint, say brokers.

For loss-affected disaster-exposed accounts and challenging occupancy classes of real estate, such as home and apartment deals in Florida, interest rate hikes of 20% and higher were typical.

Uncertainty remains about how reinsurance renewals on July 1 may affect primary pricing, industry experts said. Reinsurance renewals after the turn of the year showed significant increases in the real estate industry in the United States, said Gallagher Re, the reinsurance unit for Arthur J. Gallagher & Co., in a report on 1

July.

Another variable is whether any major hurricanes hit the United States this season, brokers say.

Disaster capacity pressed

Capacity is generally sufficient to meet demand, with some exceptions in difficult areas, says Rick Miller, Boston-based real estate industry leader in Aon PLC’s business risk management business.

The losses for most property insurance companies, absolutely in the first quarter, appear to have been less severe than in the previous year, allowing for a “slightly more optimistic view of the world,” Miller said.

It remains to be seen what the effect of the reinsurance renewals on July 1 will be, he said. “Logic can say that operators will try to pass on these costs.” I suspect they will try, because they feel that values ​​are not where they should be, “but it is not a holistic view, he said.

The repercussions of the reinsurance renewals are beginning to show, creating a difficult market for loss-making coastal properties, says Brian Dove, Dallas-based national real estate agent at USI Insurance Services LLC.

“There are capacity issues when it comes to that type of account … Due to the restrictions that carriers place on their units, especially in coastal winds, we see the potential for demand to exceed supply,” Dove said. Properties exposed to forest fires in California are in the same situation, he said.

Some insurance companies have reduced the capacity for coastal property accounts, or relocated the capacity of shared and layered programs, and some are terminating programs, say brokers.

Insurance companies are closely monitoring their accumulations and therefore compensation capacity associated with disaster risks has usually come at a much higher cost in the past, mainly driven by what appears to be a reduced supply, says Michael Rouse, New York-based leader in real estate practice. at Marsh LLC.

This applies to everything that is considered a high-risk area, such as convective storms, floods, Gulf Coast winds and earthquakes in California, said Mr. Rouse.

Primary insurance companies find it difficult to put together adequate disaster capacity, and pricing is higher for whatever capacity they can offer because there is less supply on the reinsurance side, says Peter Fallon, head of national real estate practice at brokerage Risk Strategies Co. Inc. Boston.

“Those of us who worked in business with 7/1 dates tried to get insurers to focus on accounts and give us quotes. They were very reluctant to do anything because they predicted what was happening in the market and what they should prepare for,” he said. in Fallon.

Even the market for earthquake risk in California, which was previously considered somewhat more competitive, is being tightened, he said.

Deductibles also increase. “Where before you could get away with 5% deductible for wind, now it will be 10%. … It depends on the insurer and their view of the risk and what we can show from a model point of view “, he said.

Navigate inflation

High inflation and ongoing disruptions in the supply chain have led insurance companies to focus on correct reporting of property values ​​and compensation costs.

Where they are uncomfortable with valuations, insurers face coverage constraints, such as marginal clauses and liability limits for endorsements, brokers say.

Insurance companies are more concerned about their anchor points due to the increase in exposures, and in some cases, they may move up a tower on large real estate programs in some locations, said Mr. Rouse. “There is a cost associated with it from a premium point of view,” he said.

Even where prices are unchanged, property buyers face premium increases of about 20% due to the increase in value in the inflation-driven environment, say brokers.

Twane Duckworth, chief executive of risk management for the city of Garland, Texas, and a board member of the Risk & Insurance Management Society Inc. said the municipality’s property premium increased by $ 586,104 to $ 3.52 million at the renewal in October last year, and its total insurance values. increased by 13% to just over $ 1 billion.

This year, Garland is considering restructuring its insurance program to eliminate some of its electricity generation risks. This can “potentially reduce the overall cost of keeping me within my budget,” Duckworth said.

The municipality’s power production and public resources account for 75% of its TIV, he said. With pressure in the supply chain, a large loss can lead to problems with business interruptions because the waiting time for a replacement turbine, for example, is approximately 18 months. A valuation of the city’s property portfolio has just been completed to ensure that the valuations are correct, he said.

Business continuity planning becomes very important as insurers try to understand what a unit will do if there is a loss, says Michael Williams, Whitehouse Station, New Jersey-based vice president, leader in manufacturing, commercial insurance, at Chubb Ltd. .

Because the time frames are longer and the costs go up, it becomes more important that they have these plans in place in advance, said Mr. Williams.

Brokers need to be creative and if they can not make a deal across the board for all locations, they may need to develop things to reflect where the risks and exposures are today, Fallon said.

Buyers are tired and frustrated by the continuing pressure and are looking for alternatives such as insurance-related securities, parameters or structured solutions, Miller said. “The alternative market has expanded, but it is still not for the majority of customers yet,” he said.


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