US real estate insurance market stabilising, says Lockton

The last two years have seen some of the most difficult US real estate insurance renewals in a generation. But according to Lockton, despite concerns about natural catastrophe losses, market stability is improving through insurer adjustments and the growth of alternative risk options like parametrics and captives. In its Real Estate Insurance Market Stabilizing? 2024 Real Estate Market Outlook, Lockton notes that while natural catastrophe losses remain a concern, topping $100bn in 2023 for the sixth year since 2017, the effects of valuation and rate increases appear to be catching up. “Factoring in changes to retentions, limits and other critical programme design elements over this time period, insurers are in a better position to weather these events, suggesting better results for insurance buyers going forward. Further, the rapid increase of alternative risk options, such as parametrics, captives and structured solutions, are also bringing more options and competition to the market,” says the broker. Property insurance market conditions are starting to improve for real estate companies. While rates are not yet decreasing and the vast majority of buyers continue to renew with rate increases, the pace of those increases is moderating rapidly. Commercial and other non-habitational risks with relatively favourable loss profiles and limited catastrophe exposures are now generally able to renew flat or with low single-digit rate increases. Habitational risks with similar profiles are renewing in the high single digits to low double digits, says Lockton. It adds that insurers are becoming more flexible on terms and conditions and showing a greater willingness to negotiate and compromise. “On a positive note for buyers, rate and valuation changes over the last five years are starting to catch up with loss trends. This does not mean we are out of the woods; it just means that premium-to-loss ratios across the industry appear to be stabilising. As carriers look to grow, they will likely be limited in their ability to continue to raise rates and retentions and otherwise impose coverage restrictions,” the outlook states. While buyers generally benefited from limited hurricane activity in 2023, insureds with heavy catastrophe exposure in Florida and along the Gulf Coast are expected to see more challenged results at renewal. Although buyers should generally be able to secure the limits they need, the cost may remain high as new capacity slowly becomes available for these risks. As for liability, Lockton notes that across all industries, insurers are experiencing an increasing deficiency in industry reserves associated with third-party liability losses, driven in part by social inflation. Liability insurers are also tightening terms and conditions and restricting coverage for multifamily risks, including seeking to exclude coverage for assaults, shootings, sexual assaults, and other violent crimes or adding submits and/or higher retentions. According to Lockton, in the first half of 2024, real estate buyers with favourable loss histories should expect to see slow improvements in property market conditions, including continued moderation of pricing absent any market-changing catastrophe losses. Property insurers, however, are likely to continue to scrutinise data quality in underwriting submissions, and buyers that have experienced a high frequency and/or severity of recent losses will likely face difficult renewals. The broker adds that valuations remain a key area of focus for insurers. Lockton warns that insurers are also likely to seek to address growing convective storm losses in the first half of 2024 with fine-tuning of deductibles or limiting their exposure, particularly for buyers with properties in hail-prone states. “For liability lines, real estate buyers should be evaluating their ability to retain loss as carriers are expected to move away from guaranteed cost programmes, as well as pushing retentions up,” says Lockton.

US real estate insurance market stabilising, says Lockton

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