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A New Decade Ushers in New Property Casualty Insurance

Richard Jungman
Richard Jungman
Practice Leader, Fraternal

For most of the 2010s, buyers of commercial property casualty insurance enjoyed declining rates and numerous enhancements in coverage. The soft property insurance market cycle was largely driven by two factors:

  1. The unprecedented levels of capacity in the market created by the large amounts of capital flowing into the insurance market
  2. A lower than expected number of catastrophic events such as floods, earthquakes and hurricanes

While there remained ample capacity, rates began to rise in late 2018 and into 2019. Frequency and severity of claims increased, resulting in many carriers seeing their underwriting profits erased.

Starting in 2017, the number and severity of hurricanes impacting the U.S. increased dramatically. In 2018, it was estimated that worldwide the insurance industry incurred insured property losses totaling over $90 billion. While most people recognize the big events, such as Hurricane Harvey and the wildfires in the Western U.S., there were over 42 natural disasters in 2018 that exceeded $1 billion, with 16 of those events occurring in the U.S.

The impact of the losses incurred in 2017 and 2018 began to impact renewal rates in 2019 with most buyers seeing increases ranging from 5-10 percent, which was below the initial projections provided by many industry experts. This was primarily due to less-than-expected rate increases in the reinsurance market.

In 2020, those factors came to fruition and, combined with continuation of weather-related losses, most buyers are seeing significant rate increases. Difficult sectors of the market are feeling it harder than others. One is the habitational market, which includes fraternity and sorority chapter homes and multi-family risks.

The Habitational Market Is Experiencing Change

This habitational property casualty market has seen the greatest volatility. Many property casualty carriers have closely reviewed their portfolio of risk and have elected to no longer entertain this class of business. This loss has resulted in limited competition in the market and has resulted in carriers that are still willing to underwrite habitational risks, seeking rate increases from 10-20 percent on clean accounts and significantly higher for accounts with difficult loss history.

In addition to rate increases, many buyers are seeing reductions in breadth of coverage, especially for the peril of flood. Some carriers, most notably Lexington, Zurich, and Lloyds of London have instituted minimum deductibles of $100,000.

J.J. Morrow of CRC Chicago and one of the nation’s leading property brokers stated he is seeing rate increases exceeding 25 percent. In talking with him, I asked him what the leading driver of the increases was. He told me, “It is almost entirely being driven by attritional losses, which includes fire and wind/hail. I have an easier time placing coverage for accounts in Florida with traditional cat exposures than I do for a risk that is concentrated in the wind and hail prone areas in the Midwest and Texas.” Morrow further added, “Underwriters are more acceptable of a loss from a hurricane than they are hail. Carriers have grown tired of replacing roofs every time the wind blows.”

So, what can an owner of habitational properties do to control the impact of this hard market?

The most effective strategy in the immediate future is to consider a higher deductible property casualty insurance policy. In the long term, focus on limiting avoidable claims and look to make improvements in loss prevention, such as fire sprinklers. And lastly, wait it out. Hard markets tend to be shorter cycles than soft markets, typically lasting less than two years.

Have any questions about property casualty for habitational markets? Send us a message! We’d be happy to help you.

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