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Commercial Property Insurance Market Overview

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The Commercial Property Insurance market in the U.S. and Canada is continuing to experience tightening of capacity and rising premiums, although rates are not increasing at the rate of Summer/Fall 2020, according to a group of industry experts with Burns & Wilcox. This means brokers need to provide all the documents necessary for renewal or new policies to ensure they have a better opportunity of finding a solution to fit their client needs.

Other trends in the Commercial Property market include geographic variability based on the potential for catastrophic events like hurricanes, floods, and wildfires. This has led to more specific terms and deductibles being added to many policies and additional limitations for flood and wind/flood coverage have been created. Higher deductibles are now more common for AOPs, wind coverage, and more.

While there may not be short-term change, the market may open a bit in 2022, particularly in geographic areas determined to have lower risks. However, even as rate increases continue there is light at the end of the tunnel for North America.

Rate increases continue but the percentages are falling

Mid-sized to large accounts of up to $100 million have seen rate increases of about 10 percent this year. In late summer 2020, rate increases were averaging closer to 20 percent year over year. The smaller increases are a result of improving capacity, new market capacity, and incumbent markets trying to retain renewal business.

Carriers are unwilling to offer high line amounts on any one risk, so they may be placed with multiple carriers to help clients get the solution they need. Multiple carriers are often required in order to complete structured or layered deals. Increases in deductibles and strict policy wordings are also common.

One common trend is that with businesses learning to live and operate in a pandemic, some carriers are no longer analyzing loss runs but still asking about occupancy rates. Operations and security details remain critical, particularly as more requests for vacant building policies are seen.

The domestic market is offering brokers minimal coverage options, both due to risk appetite and to keep premiums affordable. That is why Burns & Wilcox is encouraging brokers to get ahead of a potentially difficult renewal, and to be mindful of retention strategies. Carriers are turning away potentially unprofitable businesses so producers should get a better feel for carrier appetite to set proper client expectations.

Geographic differences can be significant

There is variability among specific North American regions because of perceived catastrophic risks. Midwestern and Plains states such as Colorado, Kansas, Oklahoma, and even Texas have seen higher premiums and lower capacity because of wind, hail, and flood exposures. Western states like California, Nevada and Oregon are still being impacted by wildfires, which are a difficult to underwrite profitably, with smaller line sizes being made available.

More carriers are exiting and fewer are entering for a variety of reasons, including the fact that maximum limit sizes are often $1 million for any single line, limiting opportunities for new carriers. Clients are also opting not to purchase the excess limits their profile needs because of the increased premiums.

Hurricanes also remain a risk to states in the Southeast and along the Eastern coast of the U.S. with Florida in particularly seeing little wiggle room with its policy premiums and capacity. Even non-traditional high-risk states like Ohio and Indiana are finding capacity tightened because wind, hail, and flooding. Most of the U.S. seems to be impacted by the potential for catastrophic storms.

Quebec and New Brunswick have traditionally been two of the more difficult parts of Canada to secure coverage, but areas of British Columbia and Alberta are getting harder as well because of wildfires and hail. Capacity and premium increase can vary significantly from one city to another in the U.S. and Canada based on data modeling. For example, the greater Toronto area is home to large commercial and residential buildings with large lines, all of which are getting harder to place, especially for excess policies.

The most effective advice is to be open about losses and provide the Burns & Wilcox team with a complete picture of a renewal or new request so the most appropriate solution is found.

London Market continues to evolve

The Lloyd’s of London market began to pull back on its capacity for wind and other CAT related policies in 2019, which led to many syndicates holding back on writing U.S. property. Now with capacity more available, the London market is starting to take opportunities away from domestic carriers in 2021.

In addition, there are new syndicates and London carriers entering the market, sometimes looking to undercut rates, while existing syndicates are looking at 25-30 percent increases. This is creating a very disjointed market compared to 2020. Capacity is still a bit reduced for Lloyd’s in the Canadian market. The Burns & Wilcox team is also witnessing a shift from binding capacity to the open market.

Looking Ahead

There is consensus from the Burns & Wilcox leadership team that rates will not climb as significantly in 2022 as they did in 2021 or 2020 for many Commercial Property clients. However, tighter aggregate capacity, higher deductibles and stricter policy conditions are likely to be status quo for a while.

The market should remain hard across the board for the remainder of the 2021 calendar year although lower risk areas that saw a spike in 2019 or 2020 are seeing lower premiums – Alabama and other areas of the Southeast away from the coastal regions for example – following tornadoes there within the last five years. Some manufacturing policies might be more readily available, although recycling, rubber, plastic or other “heavy duty” or “dirtier” manufacturing clients are still a challenge.

All brokers need to be mindful of renewals and retention in the months ahead. It may require creativity on both sides. By working with a specialty wholesaler with deep expertise and significant resources, brokers can get help in finding the solutions their clients need.

Contributor(s): Chris Zoidis, Executive Vice President, H.W. Kaufman Group; Tyson Peel, Vice President, Director, Commercial Insurance, Burns & Wilcox Canada; Carolyn Reiter, Associate Managing Director, Associate Vice President, Global Excess Partners; Teresa Cowper, Broker, Property, Burns & Wilcox Brokerage

This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.

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