US property insurance rates to keep surging in 2023

Commercial property insurance buyers in the US can expect further rate hikes this year due to a confluence of factors, with catastrophe-exposed and loss-hit accounts bearing the brunt of tightening capacity and increases of 25% and higher. A difficult 1 January reinsurance renewal season, in which property insurers faced capacity limitations and significant rate hikes, has added uncertainty in a market already hit by Hurricane Ian and other catastrophe losses and inflation, market experts say. Property catastrophe reinsurance rates for loss-hit US accounts jumped between 45% and 100% at 1 January renewals, according to a Gallagher Re report. The knock-on effect will be for property insurance policyholders this year remains unclear, brokers said. More challenging reinsurance treaty renewals and carrier concerns over property cat exposures and their cost of capital are driving current market conditions, said Rick Miller, US property practice leader at Aon’s commercial risk solutions business. “It’s a bifurcated market between natural catastrophe-exposed and non-catastrophe-exposed business,” Miller said. Accounts with significant wind exposures, especially in the southeast US, are “extremely challenging”, he said. At year-end renewals, some large accounts with Florida exposures bought lower limits than they had previously because of cost concerns, Miller said. “We were still able to put together significant limit on some Florida deals, but it was much more challenging,” he explained. The fourth quarter of 2022 was the 20th consecutive quarter of increasing rates, based on Aon data, which is “unprecedented in recent history”, he said. Capacity is the biggest challenge, said Jeff Buyze, vice president, national US property practice leader at broker USI Insurance Services. “When an incumbent carrier pulls back in the current line that they're providing – let's say they were providing $100m the year before, and now they can only provide, say, $5m or $10m – that's where we're seeing the largest rate increases, and the most difficult renewals,” Buyze said. The reduction in capacity is not just affecting catastrophe-exposed accounts, he continued. Accounts with a challenging loss history, poor risk quality and outstanding loss control recommendations are seeing “the most pressure, and the most difficulty when it comes to capacity and rates”, said Buyze. “Traditionally, in this type of market you would see new entrants… but the capital itself isn’t finding its way to the reinsurance or the insurance market,” he added. Buyze believes this cycle is likely to continue at least in the first six to ten months of 2023. Interest in captives and parametric coverages is increasing, he added. Catastrophe-exposed and non-catastrophe-exposed US property with poor loss history or risk quality will continue to see rate increases of 25% up to 150% in the first half of 2023, unchanged from the end of 2022, USI says in a recent report. Catastrophe-exposed property with minimal loss history and good risk quality will see rate increases of between 15% and 50%, while property in non-catastrophic regions with minimal loss history will see rates up 5% to 10%, USI predicts. Insurers varied in their quoting at year-end renewals, driven by the characteristics of the risk and specific geography, said Michael Rouse, US property practice leader at Marsh. “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 and conditions,” Rouse said. Larger property schedules also suffered higher rates and tighter terms and conditions but faced a more competitive marketplace, he continued. “Outside Florida, prices rose but not necessarily close to the same degree. In some instances, you could move from carrier A to carrier B to help mitigate rates,” said Rouse. In some cases, US property policyholders are struggling to buy limits they have bought historically, he added. High-quality property accounts with good loss control that are properly valued, loss-free and not exposed to catastrophes are seeing either flat rates or perhaps slight decreases increases, said Peter Fallon, US national property practice leader at brokerage Risk Strategies. Accounts where property valuations don’t accurately reflect the risk, that have had losses or are in catastrophe-exposed locations are getting hit hard, he said. Following 1 January reinsurance renewals, primary underwriters have many questions over how reinsurance changes will affect their own business, he said. “If the reinsurers are asking for more money and making changes in terms of coverage and limits, how's that now going to make its way down to the individual insurance companies and then their clients?” Fallon asked. There’s still a lot of uncertainty in the market, and recent feedback from insurers suggests that prices will increase even if capacity stays the same, said Christie Weinstein, director of risk management at Honeywell International and board director of US risk management society Rims. Honeywell’s property insurance programme renews in May. “As pricing goes up, risk managers are relying more on brokers to find different strategic approaches to managing risk versus true risk transfer,” Weinstein said. “Maybe you can restrict coverage or play with the way the coverage or limits are addressed or sublimit specific coverages, instead of taking a broad-brushed, larger retention,” she added. Conversations with clients are changing and there is greater focus on analytics, said Kathy Bettencourt, northeast US property broking leader at WTW. After multiple years of rate increases, many policyholders are re-evaluating how much coverage they need, and whether they should continue transferring risk or start looking at risk financing, Bettencourt said. In terms of overall limits “we’re seeing our clients start to buy less, because they’re taking the time to evaluate what they really need,” she said. This article first appeared on our sister website Business Insurance. 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US property insurance rates to keep surging in 2023

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