There was a time when commercial property owners could get away with a set-it-and-forget-it approach to insurance. When it came time for renewal, many policyholders would glance at the statement from their carrier, grumble a bit if there was a rate increase, pay the premium and not think about insurance until a claim arose or another year passed and it was time to renew again.
Those days are long gone, cast into history first by a series of catastrophic events and later by a persistent pandemic, with Property and Casualty (P&C) market conditions further exacerbated by supply chain issues, labor shortages and rampant inflation.
Set it and forget it? Not anymore. Instead, it’s, “If you set it and forget, you’ll soon regret it.”
Obtaining and retaining adequate Commercial Property coverage for all your exposures and risks today requires diligence on the part of both the policyholder and the insurance agent or broker, preferably in unison. Through a collaborative process of risk and claim management, periodic property valuation and underwriter information, you should be able to get the coverage you need, but it will require time, effort and expertise.
Depending on what industry you’re in and, perhaps more important, where you do business, you may need to layer coverage, adding excess and surplus (E&S) insurance to achieve desired limits. You’re also likely to pay more than in years past — though if there’s one bit of encouraging news in the current marketplace, it’s that rate increases appear to be leveling off.
How We Got Here
In mid-October 2021, Vox reported: “The water has receded and the embers have died down from many of the disasters in the United States this year — leaving insurance companies that cover floods, fires, hail, and extreme cold on the hook for staggering losses. If current trends continue, they could suffer one of the costliest years in recent memory.
“In the first half of 2021, disasters inflicted a staggering $42 billion in losses covered by insurance, a 10-year high. Then in September, Hurricane Ida cut a path of destruction through the Gulf Coast and flooded neighborhoods from Louisiana to New Jersey, causing between $31 billion and $44 billion in insured losses. Ida now ranks among the top five costliest storms in US history.”
The catastrophic events noted in the Vox report came after years of record-setting catastrophic losses and before both the historic flooding on the upper California coast in late October and the devastating tornadoes that struck much of the South and Midwest in December, the latter event killing at least 88 and causing an estimated $3 billion in property losses.
Year 2 of the COVID-19 pandemic, meanwhile, contributed to a labor shortage and supply chain delays that have driven up prices, making the cost of repairing and replacing property all the more expensive – another factor in driving up rates. The result: An already hard market for Property and Casualty Insurance, including Property Insurance, hardened even more.
Commercial Property Insurance Outlook for 2022
In December 2021, Alera Group released its Property and Casualty 2022 Market Outlook. Our summary of P&C market conditions for property insurance predicts that commercial property insurers will continue to act in response to the “ever-increasing number of multi-billion-dollar named catastrophes” and includes the following:
- Pricing will increase by double digits for the fourth consecutive year. Policyholders with poor risk quality, significant losses and exposure to catastrophe-prone regions will experience above-average increases. Such risks will also be subjected to coverage restrictions and higher deductibles. Higher pricing will be offset somewhat by reductions in coverage. The financial impact caused by the industry’s imposition of higher deductibles due to losses from natural disasters could be mitigated with the purchase of a separate Wind Buyback Insurance policy.
- Capacity will be sufficient, but availability will depend on the risk quality assessment, price and location. Buyers should anticipate lower available limits, restricted coverage terms, increased deductibles and increased emphasis on coinsurance. Because many underwriting companies have narrowly focused risk appetites, multiple markets may have to be employed to complete a structured high-limits/high-value program.
- Underwriting scrutiny will be more severe for certain risks. Those with a history of losses, inattention to maintenance, insufficient loss control and risk management programs, will be subject to greater scrutiny.
- Insurance-to-value is more important than ever. Undervaluation has perpetually been a coverage problem, but the recent shortage of building materials and labor, combined with changes in building ordinance and laws, has created huge gaps in insured values vs. actual costs. Annual, or even more frequent, reviews of the limits’ adequacy will be an ongoing requirement.
In recent years, multiple companies have left the commercial property insurance market or at least reduced their offerings in that line of coverage. The Market Outlook notes that while capacity for coverage is stable among companies that continue to offer property coverage, underwriter scrutiny is greater than ever. Rates remain unfavorable for consumers, although increases appear to be leveling off.
What You Can Do
Applying for and renewing insurance coverage should not be a passive process. It’s incumbent on property owners to take an active role in selecting and maintaining customized, up-to-date and cost-effective coverage.
Begin by keeping your insurance agent or broker apprised of any changes regarding your property — including occupancy — and work together to inform the insurance company writing your coverage. Underwriters may be conditioned to view applications unfavorably — especially in catastrophe-prone areas — but a comprehensive presentation including property details and claim history may help overcome underwriter reluctance.
Providing your insurer with a property inventory — including photos and video of the insured structure’s interior, exterior and contents — also is immensely helpful in insuring to value and in filing a claim, should the need occur.
For a more in-depth look at strategies for navigating insurance market conditions, read the Alera Group Property and Casualty 2022 Market Outlook, where you’ll also find valuable information on factors driving the current P&C market, as well as analysis by industry and lines of coverage. To obtain the whitepaper, click on the link below.
About the Author
Legacy Risk & Insurance Services, an Alera Group Company
A third-generation insurance broker, Cory Higgins co-founded Legacy Risk & Insurance Services in 2012, after playing an instrumental role in growing his family’s business, California Insurance Center, into one of the largest and most reputable brokerages in California. In his work as a broker, Cory has been a strategic consultant to help clients manage their business exposures, focusing on implementing risk management techniques to reduce the overall cost of risk. A Certified Insurance Counselor (CIC), he has extensive experience working with real estate owners to create master insurance programs that enhance coverage while reducing costs.