No stopping commercial property market impacts in Q1 & Q2 - RPS

Premium costs for commercial property insurance are expected to continue to be impacted through at least the first half of 2020, as more business flows into the excess & surplus lines market following record insured losses in 2017 and 2018, according to E&S wholesale broker and MGA Risk Placement Services (RPS).

The E&S market typically sees less submissions during the third quarter, but in the third quarter of 2019 the pace of new submissions actually picked up as conditions continued to firm in the standard property insurance market, according to Wes Robinson, president, national property brokerage at RPS. Following rate hikes averaging between 5 percent and 15 percent in early 2019, increases for new submissions to the E&S market began to accelerate midyear, growing by 20 percent to as much as 50 percent by year-end, he noted.

Now after record storm losses in 2017 and 2018, the standard market is pulling back on capacity and adjusting terms and conditions, affecting rates. This is expected to continue through the second quarter of 2020 as insurers seek a return to profitability and more competition is introduced.

“Rates are climbing for everybody,” even for properties with minimal losses, observed David Novak, San Francisco-based Area president at RPS. Meanwhile, “standard markets no longer have as broad an appetite for more challenging classes of business, including hospitality, habitational and accounts that are loss-challenged,” Novak added.

Underwriters for both admitted and non-admitted insurers—many of whom have never experienced a firming market—are under serious pressure to restore profitability to the property insurance market, especially for properties located in regions of the country exposed to hurricanes, tornadoes, hail, flooding and wildfires.

More scrutiny is also being placed on property valuations since replacement costs have been outpacing insured values throughout the US for the last several years.

Many property owners are choosing to assume higher deductibles and self-insured retentions to make coverage more affordable. “There are two things commercial insurance buyers can do to save premium dollars: either buy lower limits or increase their deductibles,” said Robinson. In addition, he noted that many insurers are reducing coverage limits, forcing buyers to purchase coverage in layers.

RPS’s 2020 US Property Market Outlook spotted several additional key factors affecting property market conditions: while prices are increasing across the board, the industries experiencing the most significant adjustments are habitational real estate – hospitality, schools, manufacturing, food products, metal foundries and recycling, and auto, truck and farm equipment dealers.

Reinsurance costs are increasing for insurers, and less capital is coming into the Insurance-Linked Securities (ILS) market, which has provided an alternative source of reinsurance protection.

RPS also found that underwriters are requiring appraisals to confirm property valuations and evidence of loss control.

Business income costs also have been higher than expected, so underwriters are raising deductibles, adding time limits for recovering lost income and requiring more documentation to support revenue projections.

Additional capacity that was historically provided by managing general agents is shrinking. As a result, accounts that had been in programs that are no longer available are seeing rate increases anywhere from 50 percent to 100 percent when they seek coverage on their own.

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