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
Building Materials | Aug 3, 2022
Shawmut CEO Les Hiscoe on coping with a shaky supply chain in construction
BD+C's John Caulfield interviews Les Hiscoe, CEO of Shawmut Design and Construction, about how his firm keeps projects on schedule and budget in the face of shortages, delays, and price volatility.
Codes and Standards | Aug 3, 2022
Some climate models underestimate risk of future floods
Commonly used climate models may be significantly underestimating the risk of floods this century, according to a new study by Yale researchers.
| Aug 3, 2022
Designing learning environments to support the future of equitable health care
While the shortage of rural health care practitioners was a concern before the COVID-19 pandemic, the public health crisis has highlighted the importance of health equity in the United States and the desperate need for practitioners help meet the needs of patients in vulnerable rural communities.
Reconstruction & Renovation | Aug 3, 2022
Chicago proposes three options for Soldier Field renovation including domed stadium
The City of Chicago recently announced design concepts for renovations to Soldier Field, the home of the NFL’s Chicago Bears.
Codes and Standards | Aug 2, 2022
New tools help LEED projects reach health goals
The U.S. Green Building Council now offers tools to support the LEED Integrative Process for Health Promotion (IPHP) pilot credit.
Market Data | Aug 2, 2022
Nonresidential construction spending falls 0.5% in June, says ABC
National nonresidential construction spending was down by 0.5% in June, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau.
K-12 Schools | Aug 1, 2022
Achieving a net-zero K-12 facility is a team effort
Designing a net-zero energy building is always a challenge, but renovating an existing school and applying for grants to make the project happen is another challenge entirely.
Codes and Standards | Jul 29, 2022
Few projects and properties are being built beyond code
Clients and architects disagree on how well building to code provides resilience, according to a recent report by the American Institute of Architects (AIA) in partnership with Owens Corning.
Headquarters | Jul 29, 2022
Nike HQ’s newest, largest structure: the Serena Williams Building
In Beaverton, Ore., the new Serena Williams Building, at just over 1 million square feet, is the largest structure at Nike World Headquarters.
| Jul 28, 2022
Fanning Howey hires Dennis Bane, AIA, as Project Executive
Fanning Howey, an architecture, interiors and engineering firm specializing in learning environments, has hired Dennis Bane, AIA, ALEP, to serve as a Project Executive for the firm’s Indianapolis office.