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Property insurance prices continue to rise in 2023



Buyers of commercial property insurance can expect further rate increases this year due to a confluence of factors, with catastrophe-exposed and loss-affected accounts bearing the brunt of tightening capacity and increases of 25% and higher.

A difficult reinsurance renewal season on Jan. 1, with property insurers facing capacity constraints and significant rate hikes, has added uncertainty to a market already battered by Hurricane Ian and other catastrophe losses and inflation, market experts say.

Property catastrophe reinsurance rates for non-performing U.S. accounts rose between 45% and 100% at January 1 renewals, according to a Gallagher Re report issued last week. What the knock-on effect will be for property policyholders this year remains unclear, brokers said.

More challenging reinsurance contract renewals and insurers̵

7; and reinsurers’ concerns about property tax exposures and their cost of capital are driving prevailing market conditions, said Rick Miller, Boston-based leader of real estate in Aon PLC’s business risk solutions business.

“It’s a fragmented market between natural disaster-exposed and non-disaster-exposed companies,” Mr. Miller. Accounts with significant wind exposure, particularly in the southeast, are “extremely challenging,” he said.

At year-end renewals, some large accounts with Florida exposures bought lower limits than they had bought in the past because of cost concerns, Miller said. “We were still able to put together significant limits on some Florida deals, but it was much more challenging,” he said.

The fourth quarter of 2022 was the 20th consecutive quarter of rising prices, based on Aon data, which is “unprecedented in recent history,” he said.

Capacity is the biggest challenge, said Jeff Buyze, Fort Lauderdale, Fla.-based vice president, national real estate practice leader at USI Insurance Services LLC.

“When an incumbent carrier pulls back in the current line that they’re providing — let’s say they provided $100 million the year before, and now they can only provide, say, $5 or $10 million — that’s where we see the biggest rate increases and the most difficult renewals,” Mr. Buyze said.

The capacity reduction doesn’t just affect disaster-prone accounts, Mr. Buyze. Accounts with challenging loss histories, poor risk quality — such as legacy frame construction — and with outstanding loss control recommendations experience “the most pressure and the most difficulty when it comes to capacity and pricing,” he said.

“Traditionally, in this type of market you would see new entrants … but the capital itself is not finding its way into the reinsurance or insurance market,” and this cycle is likely to continue at least for the first six to 10 months of 2023, he said. Interest in captive and parametric coverages is increasing, he added.

Catastrophe-exposed property and non-catastrophe-exposed property with poor loss history or poor risk quality will continue to see rate increases of 25% up to 150% in the first half of 2023, unchanged from late 2022, USI said in a report published last week.

Catastrophe-exposed property with minimal loss history and good risk quality will see rate increases of between 15% and 50%, while properties in non-catastrophic regions with minimal loss history will see rates rise 5% to 10%, USI said.

Insurers varied in their year-end renewal quotes, driven by the characteristics of the risk and the specific geography, said Michael Rouse, New York-based leader of the real estate practice at Marsh LLC.

“Without a doubt, the windstorm, hurricane-exposed states like Florida and Louisiana continue to be a struggle, both from a capacity standpoint and pricing, as well as terms,” ​​Mr. Rose.

For some larger property schemes there were still higher prices and tighter terms but a more competitive market, he said. “Outside of Florida, rates went up but not necessarily near the same degree. In some cases, you can go from carrier A to carrier B to reduce rates,” he said.

In some cases, policyholders are struggling to buy limits that they have historically, Mr. Rose.

High-quality accounts with good loss control that are properly valued, have no losses and are not exposed to catastrophes get either flat rates or maybe small reductions or small increases, says Peter Fallon, national real estate practice leader at brokerage Risk Strategies Co. Inc. in Boston.

Accounts where property valuations don’t accurately reflect risk, that have had losses or are in disaster-prone locations are hit hard, he said.

After the Jan. 1 reinsurance renewals, insurers have many questions about how reinsurance changes will affect their own business, he said.

“If the reinsurers are asking for more money and making changes to coverage and limits, how is that going to trickle down to the individual insurers and then their customers?” said mr. Fallon.

There is still a lot of uncertainty in the market, and recent feedback from insurers suggests that rates will increase even if capacity remains the same, said Christie Weinstein, New York-based director of risk management, at Honeywell International Inc. and a Risk & Insurance Board member of the Management Society Inc. Honeywell’s property insurance program is renewed in May.

“As pricing moves up, risk managers rely more on brokers to find different strategic approaches to managing risk versus true risk transfer,” Weinstein said.

“Maybe you can limit the coverage or play around with how the coverage or boundaries are addressed or subliminate specific coverages, instead of taking a broad-brush, larger retention,” Weinstein said.

Conversations with clients are changing and there is a greater focus on analytics, said Kathy Bettencourt, New York-based Northeast real estate brokerage leader at Willis Towers Watson PLC.

After years of rate hikes, many policyholders are reevaluating how much coverage they need, and whether to continue transferring risk or start looking at risk financing, Bettencourt said.

As for overall limits, “we’re seeing our customers start to buy less, because they’re taking the time to evaluate what they really need,” she said.


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