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
| Jan 26, 2012
World of Concrete 2012: A tinge of optimism
Cement consumption is expected to increase significantly in 2013, the first time an increase has been predicted in the past five years.
| Jan 26, 2012
Three dead, 16 missing in Rio buildings collapse
The buildings, one 20 floors high, collapsed on Wednesday night in a cloud of dust and smoke just one block away from the city's historic Municipal Theater.
| Jan 26, 2012
Siemens launches smoke detection knowledge center
New knowledge center web site demonstrates efficacy of smoke detection.
| Jan 26, 2012
Hendrick Construction completes Osso Restaurant in Charlotte
Designed by François Fossard, Osso's upscale interior includes tapered, twisted decorative columns and an elegant fireplace in the center of the lounge.
| Jan 26, 2012
HOK partners with USGBC on design of Haiti children's center
Passive design principles give form to a sustainable, restorative environment for the children of Haiti.
| Jan 26, 2012
American Standard names Gould as president and CEO
Gould succeeds Don Devine, who led the successful turnaround of American Standard Brands.
| Jan 26, 2012
Summit Design+Build completes law office in Chicago
Applegate & Thorne-Thomsen's new office suite features private offices, open office area, conference rooms, reception area, exposed wood beams and columns, and exposed brick.
| Jan 24, 2012
New iPad app ready for prime time
Siemens’ versatile application connects users to APOGEE BAS control and monitoring functions via wireless network connectivity. The application directly interacts with BACnet/IP and Siemens APOGEE P2 field panels.
| Jan 24, 2012
Vyhanek joins Thornton Tomasetti’s Kansas City office
Vyhanek will assemble a new MEP team in the Midwest to support Building Performance and Property Loss Consulting practices.
| Jan 24, 2012
U of M installs new lighting at Crisler Player Development Center
Energy efficient lighting installed at PDC reduce costs and improves player performance.