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 11, 2012
Mortenson starts construction of Rim Rock Wind Project
Renewable energy contractor to build 189-megawatt wind project in Sunburst, Mont.
| Jan 9, 2012
Shawmut appoints Les Hiscoe COO and EVP
In his new role, Hiscoe will focus on developing the Company’s field services divisions; national business in retail, hospitality, gaming, and sports venues; Tri-State business in academic and healthcare; sales and marketing; and human resources
| Jan 9, 2012
Thornton Tomasetti acquires green consulting firm Fore Solutions
International engineering firm launches new building sustainability practice.
| Jan 9, 2012
METALCON International 2012 announced
METALCON 2012 is scheduled for Oct. 9-11 at the Donald E Stephens Convention Center, Hall A, Rosemont, Ill.
| Jan 9, 2012
Lutron appoints Pessina president
In his 35-year career with Lutron, Pessina has acquired broad experience in the engineering, quality assurance and manufacturing areas.
| Jan 9, 2012
A new journey for KSS Architects co-founder
Kehrt's legacy of projects include Rutgers University's Biomedical Engineering Building, the renovation and expansion of Cornell University School of Hotel Administration, the recent new campus center at The Richard Stockton College of New Jersey and Princeton Township's Municipal Complex.
| Jan 8, 2012
TCA releases The Construction of Tilt-Up
The newest publication from the TCA is the second in a planned trilogy of resources covering the architecture, engineering and construction of Tilt-Up
| Jan 8, 2012
WHR Architects promotes Joel Colwell, AIA, to principal
With over 30 years of experience, Colwell has managed large-scale, complex projects for major healthcare systems as well as challenging smaller renovations and additions — all with notable success.
| Jan 6, 2012
Doug Wignall named president of HDR Architecture
HDR Architecture, Inc. is known for its award-winning designs for urban environments, campuses and buildings in the healthcare, science and technology, civic, justice and higher education markets.
| Jan 6, 2012
Gensler unveils restoration and expansion of Houston's Julia Ideson building
The "new" building will serve as a repository of Houston memorabilia and rare archival material as well as the city's official reception space and a venue for exhibits, meetings and other special events.