The commercial property and casualty (P&C) market is driven by two powerful, albeit conflicting, forces: large catastrophic losses and excess capital. As a substantial part of real estate development is happening in areas exposed to floods, wildfires, severe storms, hurricanes and earthquakes, insurance companies are rethinking how to deploy their capital to manage aggregation in catastrophe exposed areas.
USI Insurance Services, a global insurance brokerage and consulting firm, recently released its 2019 Commercial Property & Casualty Market Outlook, which provides insight into the current dynamics of the property and casualty insurance market, as well as a deeper dive into covered sectors that include commercial real estate and construction, transportation, manufacturing/distribution, environmental, and aviation.
The report found a stable P&C industry in 2018, despite it having experienced five of the 15 costliest global catastrophes in the past two years, coupled with multiple large wildfires and other major loss events, which collectively caused in excess of $125 billion in total insured damages.
The P&C industry remains well capitalized, and its surplus now stands at $760 billion. Consequently, the industry has resisted significant and sustained market-wide rate increases, even as insured property losses from U.S. catastrophes alone went from $14.3 billion for 2.4 million claims from 33 catastrophes in 2010 to $101.9 billion for 5.2 million claims from 46 catastrophes in 2017, according to Property Claims Services and the U.S. Bureau of Economic Analysis.
It remains to be seen whether such restraint is sustainable if catastrophic events continue to increase and wreak havoc. USI says while most insureds should expect a flat to plus-5% rate change, but cautions that current rate trends will be difficult to maintain if the frequency and severity of catastrophes don’t abate.
The report notes specifically that pricing challenges are likely to persist in specific coverage lines such as property-exposed accounts in wind-prone areas, habitational risks, and large commercial trucking fleets.
Carriers, says USI, are also more likely to ask for moderate-to-high rate increases for many insureds in the public company directors’ and officers’ space, employment practices liability and medical malpractice for healthcare providers in certain classes.
Within the commercial real estate sector, multifamily properties could have the hardest time finding willing insurers. Beyond the natural catastrophe losses in 2017 and 2018, multifamily portfolios are producing fire and water damage losses, causing some carriers to either exit this risk class entirely, or increase rates and deductibles even for low-loss level insureds. With overall segment capacity shrinking, insureds with exposures to natural catastrophe and below average loss history can expect significant rate increases.
This could be especially true for frame construction, due to numerous large fire losses in recent years.
Despite the frequency of catastrophic events, insurers have so far resisted steady and high rate increases. Image: USI
The prospects are a bit brighter for nonresidential commercial properties, whose owners, developers, and managers have a distinct advantage, says USI: Quality risks remain the focus of carrier capacity offerings. Nevertheless, portfolios exposed to natural catastrophe will require a disciplined approach to achieve an optimal outcome in the marketplace.
USI joins other market observers in its expectation that spending on commercial construction will rise in 2019. Total construction spending may produce a 4% increase in insurance premiums in 2019, compared to 2018, while rates remain mostly flat in certain jurisdictions.
For larger construction projects, safety, specialization, timeliness, and staying within budget remain the biggest risks. “With good risk management and the use of Controlled Insurance Programs (CIPs), insureds can avoid disruptions, reduce loss costs, and meet expectations of all parties who have an insurable risk,” USI’s states.
Its report found in commercial construction a greater emphasis on jobsite safety to reduce claims per man-hour. The widespread application of BIM is fostering open collaboration and new ideas that are helping to mitigate risk, too.
USI also comments on the renewed interest in modular and prefabricated construction, which brings with it benefits of quality control and worker safety. However, those methods also raise insurance-related concerns, such as how a general liability insurance policy would respond to a potential claim, and how employees should be categories within their workers compensation programs.
Related Stories
| Aug 1, 2014
Recession recovery spotty among American cities: WalletHub report
Texas metros show great momentum, but a number of Arizona and California cities are still struggling to recover.
| Jul 30, 2014
Higher ed officials grapple with knotty problems, but construction moves ahead [2014 Giants 300 Report]
University stakeholders face complicated cap-ex stressors, from chronic to impending. Creative approaches to financing, design, and delivery are top-of-mind, according to BD+C's 2014 Giants 300 Report.
| Jul 30, 2014
German students design rooftop solar panels that double as housing
Students at the Frankfurt University of Applied Sciences designed a solar panel that can double as living space for the Solar Decathlon Europe.
| Jul 30, 2014
Restaurants, farmers' markets high on urban dwellers' wish list: Sasaki report
Urban dwellers love food-related resources, public spaces, and historic structures—but really hate traffic, lack of parking, and poor public transportation.
| Jul 30, 2014
Nonresidential building activity on the rise for 2015: AIA Forecast
Semiannual Consensus Construction Forecast predicts 4.9% increase this year, 8% next year, with offices and retail facilities leading the charge.
| Jul 29, 2014
Studio Gang Architects, MAD to design George Lucas' museum in Chicago
Star Wars director George Lucas selected Chicago-based Studio Gang Architects and Beijing firm MAD to design his proposed art museum on Chicago’s lakefront.
| Jul 29, 2014
AECOM's buying spree continues: Deal to acquire Hunt Construction Group in the works
The acquisition comes just two weeks after AECOM's $6 billion deal to acquire rival engineering and construction company URS Corp.
| Jul 29, 2014
Best practices for public-private partnerships: Free AIAI guide
Resource explores P3 best practices, including legislation and procurement methods.
| Jul 28, 2014
Reconstruction market benefits from improving economy, new technology [2014 Giants 300 Report]
Following years of fairly lackluster demand for commercial property remodeling, reconstruction revenue is improving, according to the 2014 Giants 300 report.
| Jul 28, 2014
Reconstruction Sector Construction Firms [2014 Giants 300 Report]
Structure Tone, Turner, and Gilbane top Building Design+Construction's 2014 ranking of the largest reconstruction contractor and construction management firms in the U.S.